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Michael wants to convert his personal residence to a rental property. He paid $300,000 for the property and the allocation of value for tax assessment has always been 2/3 building and 1/3 land. Over the years he incurred $50,000 in permanent improvements to the house. He claimed a casualty loss deduction of $5,000 in one year. On the date of conversion the fair market value of the property was $600,000. What is the basis for depreciation of this rental?
a. $600,000
b. $345,000
c. $245,000
d. $400,000
Solution: The correct choice is "c."
In general, the basis for property converted from personal use to business or income-producing use is the adjusted basis of the property on the date of...