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Six years ago, Sharon purchased her principal residence for $500,000. In the current year, she converts...

Six years ago, Sharon purchased her principal residence for $500,000. In the current year, she converts the property to rental use because she has been unable to sell it due to the depressed real estate market. The property’s current fair market value is $400,000 (of which $100,000 is for the land). What basis does Sharon use when computing depreciation on her rental property?

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Answer #1

There are two basis ( MACRS) to determine depreciation are as follows :-

a. GDS( General Depreciation system )

b.ADS( Alternate depreciation system)

GDS is most commonly used but ADS method is mandatory if property has qualified business use 50% of time or less , Tax exempt use , financed through tax exempt bonds or used for farming purpose .

In the instant case , Sharon purchased property has no such characteristic for compulsion of ADS basis .

Hence GDS basis shall be used for computing depreciation.

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