Sorry DaveT Simpe One
I guess I have alot of tax questions that have already been asked but here I go anyway: At what point can I claim my passive loss for a rental ? Do I have to have it for a year or can I claim it for the year I bought it? what is my baseline deduction for fed taxes 1/28 value of the buildings assesment..I am not sure how long I have to wait..next year or this year, what is the seasoning? Sorry for this newb question ,
[ Edited by Brill on Date 09/27/2003 ][ Edited by Brill on Date 09/27/2003 ]
Rental income is taxable in the year it is received, rental expenses are recognized in the year they are paid. Depreciation is taken for the year, or portion thereof, in which your property was in service as a rental.
Let's say you bought a rental property at the end of March 2003, did some fixup in April, and then began advertising it for rental occupancy on the first of May 2003. You got a renter on an annual lease beginning June 1, 2003.
Since your property was placed "in service" at the beginning of May, you would report all your rental income and operating expenses from May to the end of the year. You are also entitled to a depreciation expense for a partial year from May through December 2003. Report all your income and expenses on Schedule E of your 2003 tax return that you file on April 15, 2004.
The IRS has tables for the amount annual depreciation expense allowed depending upon the month during the year your property is placed in service. The general rule is that residential rental property is depreciated over 27.5 years.
The basis for depreciation is your cost basis -- not the appraisal and not the tax assessor's value, just your actual cost plus capital improvements. You can use the tax assessor's ratio of allocation between land and improvements to compute your own basis for depreciation. For example you pay $100K for a SFR. The tax assessment is based on a $96K value with a land value of $24K and the improvements valued at $72K. The assessor's ratio of land to property value is 25% (24 divided by 96). For your property, you would allocate 25% of your purchase price to the land, and the rest to the improvements. In our example, your depreciation basis would be $75K plus the cost of any capital improvements.
There is no seasoning for depreciation. Depreciation accrues from the first day the property is placed in service.
Many Thanks
Bri