USA Cost basis for rental property depreciation.

[Zak55]

I built a new house that I will put on the rental market. The initial builder quoted 300K for the build. He was paid in full. Halfway into the build he embezzled and hid behind his lawyer. The house cost me 500K total to finish with the new builder. The new builder says that he could have built the house for 350K. The real estate assessor put it at 325K. What would be my depreciation/cost basis for this house?

 

[bklynboy]

Its whatever you paid to build - its not meant to be MV or assessed value or replacement value - its what you spent to build. Note that is the 500K includes attorney fees to go after the builder that may not qualify - there isnt enough information to say for sure what your basis is so best bet is to work with an accountant to go over your costs and see what is included in the basis

 

[Samir]

What a mess. I feel for you.

As mentioned above, your cost is still your cost, so that's what goes on your depreciation schedule. If you have documentation of the embezzlement, definitely prepare a case and try to recover the amount. The accounting for this would be ordinary business expenses, and any proceeds would be considered income, but they may or may not be taxable. Even after you have a return of the lost money, your cost basis in the house would remain the same, and if sold at a loss, would generate a large capital gains loss. Hope this helps.