Selling rental and market value

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hoops777
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Joined: Sun Apr 10, 2011 12:23 pm

Selling rental and market value

Post by hoops777 » Sat Dec 15, 2012 7:27 pm

I posted about this topic several days ago,and this id what I am left with that is unclear.I bought a home in Az. 10 years ago.Lived in it for 1 year and did about 30k worth of improvements.I converted it to a rental for the past 9 years.My question is can I add the 30k to my cost basis and do I have to somehow determine market value when it became a rental.If so,how do I determine market value in 2004 and be able to prove it to IRS.
I had read somewhere that improvements done before converting it to a rental did not count.
Thanks.
K.I.S.S........so easy to say so difficult to do.

travellight
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Location: San Diego

Re: Selling rental and market value

Post by travellight » Sun Dec 16, 2012 5:19 pm

It would seem to me that if you put 30K into it, it should add to the cost basis even if you were still living in it. That would offset your capital gains when you do sell it some day. It may be true that the 30K is not tax deductible in its current year if you were living in the home at the time whereas it might have been if it had been a rental the year those costs were incurred. I am not an expert on this but this may be a distinction between an active tax deduction versus a passive offset against capital gains in the future.

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Sbashore
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Joined: Wed Feb 20, 2008 10:38 pm
Location: Goodyear, AZ

Re: Selling rental and market value

Post by Sbashore » Mon Dec 17, 2012 12:23 pm

It would depend on the nature of the "improvement". If it falls under the category of maintenance then no it does not add to the cost basis.

I am not a tax professional but have investment properties of my own.
Steve | Semper Fi

rogermexico
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Joined: Tue Jan 08, 2008 5:58 pm

Re: Selling rental and market value

Post by rogermexico » Mon Dec 17, 2012 3:48 pm

Expenses on a rental property before being placed in service would go into the tax basis. This is certainly how it's done for vacant property, and nothing I can find in Pub 527 suggests it would be any different if you happened to be living there. Before placed in service, you can't ask whether an individual expense is a repair vs. improvement (repairs aren't allowed until the year it's placed in service so everything goes into the initial basis for the property). Also you can segment out certain improvements initially from the rest of the property (e.g. separate entry in depreciation table for appliances than for rest of property and depreciate those items more quickly).

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