I have a rental condo that I bought for $305,000. The assessed value of the land is $129,000. The assessed value of the improvements is $70,000. What do I use for my basis?

The basis of purchased real estate is the sales price plus certain fees and other expenses like these:

• Abstract of title fees
• Charges for installing utility services
• Legal fees, like:
  • Title search
  • Preparation of the sales contract
  • Preparation of the deed
• Recording fees
• Surveys
• Transfer taxes
• Owner's title insurance
• Closing costs

If you bought the land and condo for a lump sum, allocate the basis between the land and the condo. This is necessary to determine the depreciable basis of the condo. Land can’t be depreciated.

You might need to adjust the basis for things you did after you purchased the rental home but before you placed it in service. Ex: You'll add the cost of additions or improvements to your basis.

Calculate your basis in the condo by subtracting the basis of your land from the purchase price:

$305,000 – 129,000 = $176,000 basis

If you made the improvement before you placed the rental property in service, add the improvement to your condo's basis:

$176,000 + $70,000 = $246,000 basis

Unless you have other adjustments, you'll use 1 of those results as your basis for depreciation purposes.