Gain from 1099-A when low FMV used for depreciation basis

[David]

OK, let's try this again. I posted this the other day and no replies, just views. I guess no one has ever had this problem or no one is crazy enough like me to use a low FMV for rental property (based on comps) vs. using cost for the depreciation basis of the property. Here goes again -

Client received a 1099-A for rental property that is going back to the lender. When we set up the depreciation basis we used a much lower FMV amount (based on comps) than the amount he paid for the property - he originally used it as his principal residence.

When I calculate the gain, the basis, less depreciation, should be adjusted to represent his cost less depreciation. The much lower FMV was only used for depreciation puposes. surely, the gain from abandonment shouldn't be the principal amount outstanding less the adjusted basis based on using the much lower FMV for depreciation purposes.

How, in the ATX program, is this handled? The only way I see to adjust this is in the disposition tab line 13, basis adjustment.

Is this the correct way to handle this or is there a better way in the ATX program?

Thanks.

[jainen]

>>no one is crazy enough like me to use a low FMV for rental property (based on comps) vs. using cost for the depreciation basis<<

Isn't that just the standard treatment according to statute? I can't answer the software question, but surely you have an easy way to make basis adjustments for this common situation.

[Pacun]

For houses, you use depreciation using less than the actual cost of the house, correct? When you sell the property, you add the price of the land to the depreciation basis. The same principle applies.

[PapaJoe]

Think about it this way - there is a difference between "basis" and "depreciable basis". You'd use actual cost basis minus depreciation to figure gain or loss.

[David]

Thanks everyone for your responses.

Yes, I know I need to take actual cost less depreciation to calculate the gain/loss. My question is how do I adjust the depreciation basis to actual cost basis in the asset disposition tab in the ATX program? Do I just add the additional value to the basis adjustment line of the disposition tab or is there a better way to do that.

Thanks.

Think about it this way - there is a difference between "basis" and "depreciable basis". You'd use actual cost basis minus depreciation to figure gain or loss.

[LindaB]

Do I just add the additional value to the basis adjustment line of the disposition tab or is there a better way to do that.

Thanks.

I was playing around with it and that adjustment line seems like what you want. I didn't try it but you could try the help button while you're in that field, it's usually really handy to tell you what goes in that field.

[David]

Linda, thanks for your help on this. If I click on help when I am in that field, it gives me the menu for program instructions, government instructions, etc. What button are you referring to that will specifically address what goes in the field on the disposition sheet?

Thanks.

I was playing around with it and that adjustment line seems like what you want. I didn't try it but you could try the help button while you're in that field, it's usually really handy to tell you what goes in that field.

[LindaB]

Linda, thanks for your help on this. If I click on help when I am in that field, it gives me the menu for program instructions, government instructions, etc. What button are you referring to that will specifically address what goes in the field on the disposition sheet?

Thanks.

I went back and tried the help button from that field and it came up with 'instructions not installed' and a choice to get the instructions from the web, but that came up with 'instructions not available' so I guess that won't help. Use that adjustment field and then look carefully at the 4797 to make sure you get the result that you want. This must be better than trying to override on the 4797.