For what purpose? Taxes?
The answer is that you use the adjusted basis of the structure itself (the land of course is not depreciable) on the date the property is placed into service as a rental. The adjusted basis here is the $13,000 purchase price of the home in 1959, with an appropriate allocation of that price between land and structure as it would have been in 1959. Then you add to that the cost of improvements like an addition, new roof, new furnace etc but not the cost of routine repairs and maintenance. You'd subtract any depreciation they've already taken and make any other necessary adjustments for things like casualty losses, etc. The full explanation for the starting basis can be found in IRS publication 527 starting on page 7. The publication has a lot of other great information on the income tax treatment of residential rental property. California essentially uses the federal rules too.
You're welcome. I'm glad that I was able to provide you the information you needed.
A new roof adds to the value of a home. Routine repairs and maintenance of a roof don’t.
Putting on a new roof may be needed, but it is an improvement that adds to the value of the property and has a useful life more than one year. The costs for such improvements are added to the basis (and thus increase the base for depreciation when the property is a rental). Routine maintenance, like clearing snow off the sidewalks, maintaining the lawn, painting the interior, changing a lightbulb, fixing a broken sink or toilet, etc, are not improvements to the property and thus are not additions to basis. When the property is a rental the costs for those expenses may be deducted in full in the tax year the cost was incurred. See IRS publication 523 starting on the bottom of page 8 for the discussion of what counts as improvements (and thus additions to basis).
He was wrong more than once or twice ... but Einstein’s errors tend to be found on a plane far removed from the one where us ordinary mortals roam.
I love that quote!He was wrong more than once or twice ... but Einstein’s errors tend to be found on a plane far removed from the one where us ordinary mortals roam.
Perhaps my favorite Einstein quote: “Everybody is a genius. But if you judge a fish by its ability to climb a tree, it will live its whole life believing it is stupid.”