I am exploring the topic of depreciation and hoping some of the seasoned investors here have already come across these questions and can provide some guidance
For AGI above 150k, can you deduct rental income loss (after depreciation) from other passive income streams (interest income, equity investments)?
For AGI above 150k, can you carry over rental income losses until you eventually sell and adjust against rental sale proceeds at that time?
If you have multiple rental properties with some having net loss while others having net profit, can you combine P&L for all properties to arrive at net P&L without worrying about individual property profit or loss?
When you convert primary to rental, how do to calculate cost basis for depreciation? Will it be original purchase price (structure portion) plus closing costs?
Which purchase closing costs can be included in cost basis for depreciation?
Should Remodel cost before rental in-service date be depreciated separately on a more aggressive schedule or lumped together with structure cost basis?
Does depreciation recapture apply to any remodel or appliance cost that is depreciated separately from base structure?
I know some about depreciation, but not to the detailed level. Mostly,CPAs are expert in this field.
For this, my CPA took county property tax document at that year and got the structure value of the property tax for depreciation calculations. If you have some other appraisals about structure value at the year of conversion, you can also use it. If there is an audit, you need to provide proof to IRS on which basis you derived depreciation.
I talked to a CPA and advice was to always have any remodel/improvement cost on a separate more aggressive (10yr) schedule.
Per my discussion with a CPA, cost basis of structure is always based on original purchase price. However, most recent county tax assessment is used to determine % of original purchase price that can be allocated to structure vs land.
It’s the lower of purchase price and current assessed value of the structure. I had to do that for last year’s taxes. That was depressing. The place has doubled in value, and I had to use purchase price. Plus, a bunch of the value is the land. The depreciation deduction isn’t much.
Property changed from personal use. If you held property for personal use and later use it in your business or
income-producing activity, your depreciable basis is the lesser of the following.
The fair market value (FMV) of the property on the date of the change in use.
Your original cost or other basis adjusted as follows.
a. Increased by the cost of any permanent improvements or additions and other costs that must be added to basis.
b. Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis.
Example. Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation.
Nia’s adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 - $2,000). On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000).