Location: California, U.S.
My father passed away in September of last year and used to do the property management, accounting, and taxes for all of his rental properties. The way that my father performed the calculation for depreciation actually used the final tax assessor property tax statement for the tax year. The property tax statement has an assessed value on the building (improvements) on a piece of land. This assessed value was then divided by 27.5. The result of this calculation became the depreciation for the year.
For example, if Property Z has an assessed value of $100,000 in the final property tax statement which is due in November 2016, this value of $100,000 is then used when preparing taxes for year 2016. The depreciation for Property Z would be calculated as follows: $100,000 / 27.5 = $3,636. So, using this formula, the depreciation reported to the IRS for this property for year 2016 is $3,636.
Depreciation = Assessed Value of Improvements from Final Tax Statement of Calendar Year / 27.5
This method produces a different depreciation value for Property Z each year since the assessed value changes each year.
Now that my father is gone, I have handed over the tax preparation work to a CPA firm and we are having some back-and-forth regarding this method. I just wanted to get your input as to your thoughts on this depreciation calculation method. Thanks in advance.
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