What is the Basis for My Rental Unit?

by Angie Bhasin, CPA

I'm buying a new house and will rent out my current house. What is the basis for the rental property? Its original purchase price? Its appraised value at the time I first rent it?

Congratulations on the purchase of your new house. The basis of your old house that you will rent out is the sum of your purchase price when you bought it and any capital improvements you did on it. If you bought the house for $200,000 and made some improvements and additions for $100,000, its basis is $300,000 even if its fair market value is $525,000. You can depreciate the rental property over 27.5 years beginning from the date you first rent it, according to the IRS's modified accelerated cost recovery system (MACRS). The IRS publishes a table (available at www.irs.gov) that helps you figure how much the deduction is for each year. Please note that if you sell the property, you may be subject to depreciation recapture.

Angie Bhasin, CPA, is with the firm of Hewitt, Albrecht, Jones & Fitch in Danville, Calif. You can reach her at (925) 820-4426.

Have a question for a CPA? Ask it here.