Have a Tax Question? Ask a Tax Expert
Hi Brian and welcome to our site!
Generally - we may not use the fair market value as your basis.The basis is the cost which you actually paid when the property was purchased.ONLY if the property was inherited - we will use the fair market value at the time the decedent passed away as the basis.Please indicate if the property was inherited or purchased?
As the basis - we need to use your purchase price - and apportion it between the land and the building We may not use valuation done for real estate taxes as the basis - that is not correct.The basis is your investment into the property - which is the purchase price in your case.
The basis may be adjusted by some items (increased or decreased)
However - when you apportion the basis between the land and the building - you will use the same percentage as for tax office valuations. But will need to use YOUR cost.
If you has rental losses in previous years that were disallowed and because of that were carried forward - these losses are generally fully deductible in the year the rental property is sold - in this case - there is no passive activity limitation.Regarding depreciation - it is allowed for the building only - and the land is not depreciated.The basis of the building will be adjusted by the depreciation.