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Basis

To figure your depreciation deduction, you must determine the cost or other basis of your property. If you bought the property, the basis is usually its cost. The cost of property is the amount you paid for the property plus any sales tax, freight charges, installation costs, and any improvements.

Cost basis for real property includes certain settlement costs such as transfer taxes, title insurance and legal fees.

What are the exceptions?

You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A. If you make that choice, you cannot include those sales taxes as part of your cost basis.

 

Other basis is determined by how you acquired the property. For example, your basis is other than cost if you acquired the property as an inheritance. In this case, the basis is usually the fair market value at the time the property was inherited.

 

Changing personal use property to business use

If you change personal use property to business use, the depreciable basis is the lesser of the fair market value on the date of the change or your original cost basis adjusted for the cost of improvements and certain tax deductions.

 

If you use an item of property for both personal and business purposes, you must determine the percentage of business use to figure your depreciation deduction.


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