Internal Revenue Service United States Department of the Treasury
Level Basic Advanced Military International

Income — Rental and Schedules K-1

Depreciation

Basis

The total of the yearly deductions for depreciation can never total more than the cost (purchase price) or other basis of the property.

Generally, the cost of the property including the cost of improvements is the basis for depreciation.

When property is converted from personal use to rental use, the basis is the lesser of the adjusted basis or fair market value (FMV) at the time of conversion.

More Information

For taxpayers who acquired their property through inheritance, gift, or building it themselves (rather than buying it), the basis may be figured differently than using the original cost. To learn more, refer to Publication 551, Basis of Assets.

There are special rules for determining the basis of inherited property from a decedent who died in 2010. Determining the basis of such property can be complex. Refer taxpayers to a professional tax preparer for determination of basis issues. For more information on the special rules, see Publication 4895, Tax Treatment of a Property Acquired from a Decedent Dying in 2010.

Caution

Taxpayers cannot include the value of their own labor, or any other labor they did not pay for, in the basis of any property they constructed.

Publication 551
Publication 551

Publication 551

Publication 4895