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I am back to doing my taxes. I have decided to take a stab at form 4562. I have decided to do the following.

1. Use the 85% of the tax assessors value of the property as the depreciable basis. I think saying the land is worth 15% and the building 85% is reasonable. I have no better guess of the value at the time of inheritance (12/03) than the assessors value.

2. I am classifying a new refrigerator, used furnace, parking restricted sign, CO detector/smoke alarms, Doorbell parts, and window rescreening costs as 7yr property.

3. I am classifying a jigsaw, powerscrewdriver and weed clippers as 5 year property.

4. I have elected not to include the cost of copper tubing, aluminum ducts, etc. and other similar supplies as depreciable.

This leaves me with the question of how to classify painting costs. The paint job is guaranteed for 2 years. Do you have any thoughts on this or the above classifications.
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I am back to doing my taxes. I have decided to take a stab at form 4562. I have decided to do the following.

1. Use the 85% of the tax assessors value of the property as the depreciable basis. I think saying the land is worth 15% and the building 85% is reasonable. I have no better guess of the value at the time of inheritance (12/03) than the assessors value.

2. I am classifying a new refrigerator, used furnace, parking restricted sign, CO detector/smoke alarms, Doorbell parts, and window rescreening costs as 7yr property.


I would consider the sign, doorbell parts, and window rescreening as repairs, not capital improvements. I might even consider the furnace replacement as a repair in light of recent tax court decisions related to roof replacement. If you depreciate the furnace, it is 27.5 year property. Assuming that the CO detector/smoke alarms are a new installation and not a replacement of existing equipment, they are new depreciable assets as would be the refrigerator. All of these items are 5 yr property.

3. I am classifying a jigsaw, powerscrewdriver and weed clippers as 5 year property.

4. I have elected not to include the cost of copper tubing, aluminum ducts, etc. and other similar supplies as depreciable.


To the extent these are for new heating/plumbing systems, these are depreciable costs with 27.5 year recovery. To the extent they are replacements that do not improve the respective systems, but only return them to servicability, they are expenses.

This leaves me with the question of how to classify painting costs. The paint job is guaranteed for 2 years. Do you have any thoughts on this or the above classifications.

Painting is a repair.

Seeing how you really don't have a handle on which of these costs are depreciable and which are expensable, nor what the appropriate recovery periods are, you really should consult with a professional. Once the rental property records are set up correctly, you can take over future years' taxes.

Note that some of what I have posted above differs from what you will find in the IRS Publications. The IRS has taken positions in its publications which it has not been able to defend in Tax Court -- another reason to consult with a tax professional to better learn what you can and cannot claim on a rental property.

Ira
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JackieChanofChic: "I am back to doing my taxes. I have decided to take a stab at form 4562. I have decided to do the following.

1. Use the 85% of the tax assessors value of the property as the depreciable basis. I think saying the land is worth 15% and the building 85% is reasonable."


On what basis? 15% for land seems low to me for an older house. I have a reasonably well-maintained 1950s house, and the land value is probably nearly 50% of the FMV. Even or a brand new house in my neighborhhod (currently for sale) land value is probably roughly 25%.

I would be very surprised if the land value is only 15%. Does the assessor allocate value between land and improvements? If yes, what does the assessor's allocation show? If not, are they any empty/vacant lots in the neighborhood? You probably could find their assessed value rather easily.

Ira addressed all the other issues, and I cannot add any further, other than seconding his advice to hire a professional to get you started properly.

Regards, JAFO
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Author: irasmilo | Date: 7/7/05 1:42 AM | Number: 79910

I would consider the sign, doorbell parts, and window rescreening as repairs, not capital improvements. I might even consider the furnace replacement as a repair in light of recent tax court decisions related to roof replacement. If you depreciate the furnace, it is 27.5 year property. Assuming that the CO detector/smoke alarms are a new installation and not a replacement of existing equipment, they are new depreciable assets as would be the refrigerator. All of these items are 5 yr property.

Ira,

The book I thumbed through at Borders yesterday specifically said all appliances are 7yr property. Thus, I classified my refrigerator as 7yr property. The furnace and the rescreening were replacements of existing equipment. I concede that these may be repairs. The sign however is a capital improvement in my situation.
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Author: JAFO31 | Date: 7/7/05 1:04 PM | Number: 79917

On what basis? 15% for land seems low to me for an older house.

JAFO,

15% comes from the tax book I thumbed through at Borders.

"Have nunchucks. Will travel."
JCoC
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JackieChanofChic:

JAFO: <<<<On what basis? 15% for land seems low to me for an older house.>>>>

"15% comes from the tax book I thumbed through at Borders."

And its advice is worth what you paid for the tax book while you "thumbed through [it] at Borders."

I seriously doubt that a tax auditor would accept your response as evidence of a reasonable allocation (especially if the tax assessor's records differ).

Regards, JAFO


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The book I thumbed through at Borders yesterday specifically said all appliances are 7yr property. Thus, I classified my refrigerator as 7yr property. The furnace and the rescreening were replacements of existing equipment. I concede that these may be repairs. The sign however is a capital improvement in my situation.

The IRS clearly states in all of its publications that household appliances are 5 year property. Why would you think that any book you find in Borders is necessarily more definitive than the IRS pubs? On the other hand, professional research publications which cite specific court cases, Regs, Private Letter Rulings, etc. generally provide a reasonable basis for decision making.

I rest my case about cluelessness and will leave further discussion on these issues to others.

Ira
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JackieChanofChic writes:

15% comes from the tax book I thumbed through at Borders.

I reply:

Let me speak plainly here. You're trying to do this on the cheap. There's a time and place where that's appropriate. Your situation is not that time or that place. There's too much at stake and it's too easy to make a mistake that will be either expensive or impossible to fix.

Hire a professional. It's clear that doing so will cost you some money up front. It's equally clear that not doing so will end up costing you a lot more down the road. You've done all the appropriate legwork necessary to make the experience as inexpensive as possible. But trying to do this on your own (at least the first time) will prove to be a false economy.

Hire a professional. Now. --Bob
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1. Use the 85% of the tax assessors value of the property as the depreciable basis. I think saying the land is worth 15% and the building 85% is reasonable."

On what basis? 15% for land seems low to me for an older house. I have a reasonably well-maintained 1950s house, and the land value is probably nearly 50% of the FMV. Even or a brand new house in my neighborhhod (currently for sale) land value is probably roughly 25%.
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My "assessment" bill for all 3 of my properties shows a portion for land and a portion for improvements.

What you need to find out is what the portion was for the tax year the property was put in service as a rental. Then you have a defendable depreciation amount.

cat
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My "assessment" bill for all 3 of my properties shows a portion for land and a portion for improvements.

What you need to find out is what the portion was for the tax year the property was put in service as a rental. Then you have a defendable depreciation amount.


Not at all. Tax assessments often bear little relationship to fair market value. It really depends on where the property is and what the local valuation practices are. For instance, here in NJ assessments are supposed to be at market value, properties are required to be reassessed when the assessment is less than 85% of market value, but often aren't reassessed until market value far outstrips assessed value.

On Long Island, until recently real estate was assessed at 1936 construction costs. Don't ask me how they assessed things that didn't exist in 1936, but they did.

Ira
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