Allocation Of Cost Basis For New Rental
I was wondering what the best way to allocate the purchase price of the new rental among the various components of the new rental (ie. carpeting, floor covering, appliances etc). Assuming that there is one contract price for the complete property (appliances included), how do you determine how much you are paying for items that you may be able to depreciate faster than 27.5 years. Do you get an appraisal or use some other method to determine the value of the asset that you can depreciate faster?
Do any of you think that the allocation is not worth the benefit of the accelerated depreciation?
I understand that allocating the cost of the land pro-rata according to the tax assessed value is common. Does anyone do anything different?
I am aware that some may want to do component depreciation, but I usually find that it is not worth the time and effort -- especially if your holding period is five years or less.
lf you are already at the maximum net passive loss allowance, then the extra depreciation expense you derive from component depreciation will not affect your tax liability. Instead, it will just increase your suspended tax losses.