Author Topic: Questions Regarding Changing My Rental's Depreciation Basis  (Read 1844 times)

bittheory

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Question here about depreciation, mostly because TurboTax doesnít exactly make it intuitive and 4 years ago, I was a total landlording rookie, just going by the seat of my pants.

A little background: I converted my former townhome into a rental home in August of 2012. I have taken the depreciation every year, but this year, realized I was subtracting way too much in land value ($80K instead of $50K), which in turn, lowered by basis. The reason was I was using the tax valuation for an incorrect year and I also never factored in any purchase costs (closing, appraisal, origination fees, etc) as well as improvements I had made in the four years I lived in the property. Improvements that include a remodeled kitchen, bathroom, rebuilt mudroom, landscaping, etc which roughly are valued around $45K.

So for 2014 and 2015, I simply didnít subtract the land value to get my basis, since my basis is very close to the cost of the purchase. In short, I was missing out on approx $80K extra of depreciation because of my mistakes.

Even though my 2014 and 2015 taxes have been filed, I wanted to make sure I can make this change in basis. Is this an IRS red flag (Iím assuming not, since this morning my returns were accepted)?

In the future, should I continue using my new basis amount Iíve used for 2014 and 2015?

Sorry for the barrage of questions, but Iíve always gotten the best advice when it comes to landlording on this forum.

rockeTree

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Questions Regarding Changing My Rental's Depreciation Basis
« Reply #1 on: March 03, 2016, 07:11:34 AM »
'Accepted' does not mean the IRS is ok with how you handled your taxes - it just means they got usable data from turbotax and you are officially filed. For the amount of money you're talking about, I'd really want to check in with an accountant. In my part of the world this would be about $600 of getting it right and cleanly filed.


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bittheory

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Re: Questions Regarding Changing My Rental's Depreciation Basis
« Reply #2 on: March 04, 2016, 04:01:06 PM »
'Accepted' does not mean the IRS is ok with how you handled your taxes - it just means they got usable data from turbotax and you are officially filed. For the amount of money you're talking about, I'd really want to check in with an accountant. In my part of the world this would be about $600 of getting it right and cleanly filed.

Good point. I'm going to see if the IRS makes me change anything. I'm mostly mad at TurboTax for not reminding me of the basis of my property, and a little bit at myself for not knowing what I was doing in those years.

We'll see what happens. Thanks for responding.

bacchi

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Re: Questions Regarding Changing My Rental's Depreciation Basis
« Reply #3 on: March 04, 2016, 08:13:23 PM »
You can't depreciate landscaping costs. It becomes part of the land value.

https://www.irs.gov/publications/p527/ch02.html

bittheory

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Re: Questions Regarding Changing My Rental's Depreciation Basis
« Reply #4 on: March 05, 2016, 08:43:54 AM »
You can't depreciate landscaping costs. It becomes part of the land value.

https://www.irs.gov/publications/p527/ch02.html

True. I guess I mean't hardscaping not landscaping, as I upgraded a crumbling brick patio and fixed some flagstone steps.