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Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 3616
Experience:  18+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
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My understanding is that certain fees and taxes associated

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My understanding is that certain fees and taxes associated with purchasing a rental property form part of the cost basis (rather than an expense). How do you allocate these costs between land and building when determining depreciation recapture once the property is sold?

Welcome and thank you for giving me the opportunity to assist you with your tax question.


For a rental home, your basis is the original purchase price of the house plus your closing costs for buying the property. However, it does not include the value of the property's land, so you need to separate the value of your land from the value of the house/building. This is a simple calculation with the information from your closing paperwork and the most recent tax assessment of your property.


For example:


Purchase Price $100,000 ($50,000 land/$50,000 building)

Closing costs $5,000

Depreciation taken or that could have been taken $10,000

Sales Price $200,000


$50,000 + $5,000 - $10,000 = $45,000

$200,000 - $45,000 = $155,000 gain


Please let me know if you require further information or clarification. Thank you.




Barbara and 3 other Tax Specialists are ready to help you
Hi, Jake.

Please let me know if I can assist you further. If so, please come back to me here. If not, please take a moment to rate my answer to you since that is an important part of being an expert on JustAnswer, and I strive for excellence. That is also the only way I receive credit for answering you.

Thank you and best regards,