depreciation cost question - rental - Posted by SteveOH

Posted by Dave T on April 15, 2007 at 12:14:41:


I agree with the formula, but I would apply the ratio to the $15K purchase price only to determine the portion of the purchase price that should be allocated to the land value.

The $10K in rehab cost applied to the structure is fully depreciable. So I would get the depreciation basis as follows:

Depreciation Basis = Purchase price - cost of land + rehab cost.

depreciation cost question - rental - Posted by SteveOH

Posted by SteveOH on April 14, 2007 at 17:52:24:

Purchase price = 15,000. Rehab costs = 10,000. Bank lends
me $50,000 based on $60,000 appraisal. What’s the cost to
begin depreciating? Thanks!

Re: depreciation cost question - rental - Posted by Rich

Posted by Rich on April 18, 2007 at 23:39:49:

If you “expense” and item you get to take it off immediately. Depreciation only allows you to take the expense off the books over time rather than when it is incurred.

Re: depreciation cost question - rental - Posted by dealmaker

Posted by dealmaker on April 14, 2007 at 22:24:06:

RJB gave you a pretty good answer. “Some” of your rehab costs “may” be expensed in the year you incurred them, instead of capitalizing and depreciating them.


Re: depreciation cost question - rental - Posted by RJB(MA)

Posted by RJB(MA) on April 14, 2007 at 18:20:18:

Check the land to improvements ratio on the appraisal or tax assessment, apply that ratio to your total costs ($25,000), then divide that number by 27.5 to get your annual depreciation.

For example: Land value: $10,000
building: $50,000
Building= 83.33% of total $60,000 value

Your costs are $25,000, so multiply that by .8333 to get $20,832. Divide that by 27.5 to get annual depreciation of $757.52.

It doesn’t matter what your loan amount is or what the appraisal is…what counts are your actual costs and what percentage of those costs the improvements represent.


slightly different answer - Posted by Jimmy

Posted by Jimmy on April 15, 2007 at 08:15:42:

first, you need to allocate some of the acquisition cost to the land. be reasonable. this part is not depreciable.

Dealmaker correctly points out that some of your rehab period expenses can be expensed or capitalized (interest, utilities, taxes). I tend to capitalize these, but I don’t have to. if you expense them, you do not get to depreciate them.

understand that you will have certain parts of the rehab that can be depreciated over a shorter period than 27.5 years. appliances, paint jobs, carpet. [this should make sense. these things will be replaced/redone every 5-8 years]. but the basic structure and the work you do to the structure gets the 27.5 year deal.