Rental Property Cost Basis Hello,
During 2012 I had no intention of buying another home; however, my wife and I came across a great deal on another home in our same neighborhood so we decided to buy it and rent our old home. We purchased the new home in Aug and had the old home rented by the end of Sep. Before we rented it we put in an updated bathroom along with all the cleaning and painting.
Now at tax time I need to determine the cost basis of my old home which was converted to rental property late in the year. We owned and lived in the old home for over over 5 years so I assume I cannot use the purchase price as the cost basis?
I am trying to figure out what the cost basis should be on my rental. We had the house appraised in early 2012 because we thought we might try to sell it. The appraisal came back about $20,000 less than what we currently owe on it. So, do I have to use the appraisal as the cost basis or can I use the amount that we still owed on our mortgage at the time we rented the house?
Also, can I add in the expense we had from painting and updating the bathroom before we rented it? Along those lines, as I mentioned above we started the year with no intention of making any changes to our living arrangement. In early 2012 we had a brand new HVAC system installed (including AC which the home previously did not have). During that time we also installed a new water heater. We made all these improvements and more with the intent of staying in the home. So my question is, can I add these expenses to the cost basis of our home now that it has been converted to rental property?
Thank you for your guidance |