Cost basis of rental house converted from investment property

Hi All members,

I have a client who owned an investment house in his FLP. He converted it into rental house in 2012. I understand that basis of the house for depreciation purpose will be lower of adjusted basis or FMV at the time of renting the house. So in this case, basis is FMV as it is lower by around 15K than adjusted basis.

The question is related to books here. What would I do with that remaining basis in the cash basis books? The tax return will show FMV for depreciation and books has historic basis + improvements.

Answer:

1. Agreed; as you said, the basis of a rental property is the value of the property that is used to calculate your depreciation deduction on your federal income taxes. The IRS defines the tax basis of a rental property as the lower of fair market value or the adjusted basis of the property. You can calculate the tax basis of a rental property by calculating the fair market value of the property and then comparing it to the adjusted basis of the property.NOTE: to determine the basis you need several pieces of data: original basis in the property; the dollar amount of any improvements made while you occupied...Read more...