T paid $160,000 to have a home built on a lot he purchased for $25,000. Additionally, he made permanent improvements to the house of $20,000 and claimed a $ 2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. At the time the house was put into service, the property had a FMV of $180,000 with $15,000 allocated to the land. What is the basis in the property for calculating the depreciation on the rental property?

Question

Business

Linus

27 May, 14:07

T paid $160,000 to have a home built on a lot he purchased for $25,000. Additionally, he made permanent improvements to the house of $20,000 and claimed a $ 2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. At the time the house was put into service, the property had a FMV of $180,000 with $15,000 allocated to the land. What is the basis in the property for calculating the depreciation on the rental property?

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Answers (1)

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Derrick Small · Answer 1

fair market value of 165,000

Explanation:

The basis for depreciation is the lesser between:

Your adjusted basis on that date The Fair Market Value of the property on the date of the change of business activity

adjusted basis:

160,000 cost + 20,000 improvements - 2,000 causalty loss = 178,000

fair market value 180,000 - 15,000 land = 165,000

The lower is the fair market value thus, we use that amount