Tax Guru – Ker$tetter Letter

Q:

Subject: Rental property

 

LOve reading your blog!!!

 

i inherited my mothers house when she died.   now renting it out.   how do i figure out the depreciation on it for my taxes?   mother bought it for 61,000 in 1987 but city has it assessed for 135,000.

keep up the posts!!!

A:

Your cost basis of the inherited property is its fair market value at the time your mother passed away.  If an estate tax return was filed for her, you would use the value shown on the 706.  If the estate was small enough not to require a 706, you should ask a local Realtor or appraiser to give you a value.  Most Realtors will run a CMA (competitive market analysis) for you for free, hoping that you will remember that when you decide to sell the property.

I’m glad that you like my blog; but it seems that you are missing one of the main themes that I thought I was stressing; that trying to navigate the tax world without the assistance of at least one competent professional tax advisor is extremely dangerous. Your question, which any experienced tax pro could help you with, proves that you need to start working with one ASAP. 

Just establishing the overall fair market value of the property is just the first step.  Next, you will need to allocate that between the values for the non-depreciable land and the depreciable building and components (appliances, fixtures and other separately identifiable items).  Any experienced tax pro can help you with that, as well as with maximizing all of the other kinds of deductions that are available for rental properties.

Good luck.  I hope this helps.

Kerry Kerstetter

Follow-Up:

thanks for the quick response. i guess i should get a tax pro like you said. you know what they say — an ounce of prevention is worth a pound of cure!!!!