*Tax Quips, Depreciation, Inheritance, Rental Properties

Rental Property

Posted on by TaxMama

Today TaxMama hears from Sue in Nevada with a couple of questions. “I inherited rental property and must prepare for the 2008 tax return. Do I use fair market value as the cost basis in figuring the depreciation? Also, how do I calculate depreciation?”

Dear Sue,

Now that’s a nifty thing to inherit – a source of income and learning experience!

Yes, you use the fair market value at the date of death.
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You will have to split out the value of the land at date of death.
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You can’t depreciate land. If your appraiser (or the trustee or executor) had enough foresight to provide a valuation for the various components of the property (elevator, appliances, furnishings, etc.), you may be able to depreciate those components more rapidly.

Otherwise, you’ll depreciate the residential property over 27.5 years.

https://www.irs.gov/publications/p946/13081f06.html
If it’s commercial property, the life is typically 39 years. Though, at times, it could be 31.5 years.
https://www.irs.gov/publications/p946/13081f08.html

You can read more about the tax aspects of Residential Property in IRS Publication 527.
https://www.irs.gov/publications/p527/index.html

You can read more about the rules for depreciation, in IRS Publication 946
https://www.irs.gov/publications/p946/index.html You’ll also find the tables for the calculation.

If I had not experience with rental property, at least for the first year, I would work with an experienced tax professional and ask them to set up the first year and show me how to do it myself for future years.

And remember, you can find answers to all kinds of questions about rental property and other tax issues, free.
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Where? Where else? At TaxMama.com

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