Discussion Archives:Basis in Rental Property

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Tax Questions --> Basis in Rental Property

Hellothere (talk|edits) said:

19 March 2007
To determine the basis, would you use the selling price as stated on the closing statement or the amount used on the depreciation schedule? The difference is quite large. Purchase price = 125K and on the depreciation schedule it states 150K for building and 60K for land. Client does not know why there is such a big difference. Can't remember any major improvements from the time they lived in the house until they converted it to a rental. So, which amount would you use? I am leaning toward the depreciation schedule.

Secondly, client's mother helped with the down payment fifteen years ago and her name was on the title. The deal was that when the house sells she is to receive her money back. Client know wants credit for this amount as selling expense. Any suggestions? Thank you for your input.

Deback (talk|edits) said:

March 19, 2007
I'd go with the purchase statement when they bought the property. It sounds like a prior tax preparer started depreciating the FMV, instead of the original cost, at the time of conversion to a rental.

The loan from her mother is treated like any other mortgage loan. It is ignored when reporting the sale of the property. No credit as selling expense.

Hellothere (talk|edits) said:

19 March 2007
Thanks, Deback. There was a refinance with cash out prior to the conversion to rental. That may have had something to do with the basis on the depreciation schedule.

Deback (talk|edits) said:

March 19, 2007
Only the refinancing fees should have been added to the basis.

Hellothere (talk|edits) said:

19 March 2007
Agreed. I guess it will remain a mystery. Thanks again, Deback.

Taxgary (talk|edits) said:

29 March 2007
I have a client with an original closing statement on 6/26/06 with closing costs etc.
         <u>6/26/06 closing 
Sales Price   103,000.00
    Settlemt     1810.38

Amt of new loan 95,333.33 Rent Dep Credit 860.00

 Pro rata taxes 442.05

Gross due from buyer 104,810.00

  Less paid by/for         96,635.38
  Cash from buyer        8,175.00

8/8/06 re-finan close

 Settle charges          2097.43
 Payoff First Mort.   95,644.13

Gross due from buyer 97,741.56

 Amt of new loan         96,000.00

What is my cost basis of the above rental property?

Any help is greatly appreciated.

Thanks Gary Reynolds


Kevinh5 (talk|edits) said:

29 March 2007
We can't tell because you can only capitalize some of the settlement costs. You have not given enough information.

Kevinh5 (talk|edits) said:

29 March 2007
Also would have to know if this is a rental or a principal residence.
Personal tools