What is the depreciable basis of a residential investment property purchased for $291,000, with land valued at $73,000, using the IRS straight line method?

To determine the depreciable basis of a residential investment property, it's essential to separate the value of the real estate into two components: the value of the land and the value of the building. The land itself does not depreciate, meaning only the value attributed to the building is considered for depreciation purposes.

In this scenario, the property was purchased for a total of $291,000, and the land has been valued at $73,000. To find the depreciable basis, you subtract the land value from the total purchase price:

Depreciable basis = Total purchase price - Land value

Depreciable basis = $291,000 - $73,000

Depreciable basis = $218,000

This $218,000 represents the portion of the purchase price that can be depreciated over time. For residential investment properties, the IRS allows depreciation over a period of 27.5 years using the straight-line method, which means that the same amount is deducted each year.

Thus, the correct answer indicates that the depreciable basis is $218,000, and it will be depreciated over the 27.5-year period. This understanding is crucial for property owners and real estate investors as it impacts their potential tax deductions based