Discussion:Tax basis for foreign depreciable rental assets
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Stevenkwong (talk|edits) said: | 24 March 2006 |
| I just got a new French client who has rental properties in France. This is his first year filing U.S. tax returns. For U.S. depreciation purposes what should I use for basis for is real estate and French assets for depreciation? Should I use his original cost when he purchase the real estate and French asset and then apply the alternative MACRS rate. Or do I need to use his "adjusted basis" in the French real estate and French assets. Here I define adjusted basis as his original French cost less what the French tax authorities allow as "depreciation allowance" i.e. I understand "depreciation" it is a percentage of the rental income.
Any comments is appreciated. | |
| 24 March 2006 | |
| Hello Stevenkwong,
My understanding is that the depreciation basis for US purposes is the lower of cost or FMV. The method used is ADS SL with a recovery of 40 years for Residential rental property ( I assume his rental are residential) used predominantly outside the US. I certainly stand to be corrected on this and prepared to hear from others on this but this is how I have been doing it without any problems. | |
| 25 March 2006 | |
| I have done the same way for a client who has rental properties in Australia. I think lower of cost or FMV is right. | |
| 3 April 2006 | |
| The Internal Revenue Service ruled in PLR 8749008 that Internal Revenue Code ยง 1016(a)(3)(B) applies to this situation. Thus, the allowable depreciation on a foreign rental property includes that depreciation that would have been allowable if the foreign taxpayer had been required to file a United States income tax return in the years that the property had been in service.
Thus, he would use original cost (in USD) and reduce his basis by the depreciation that would have been allowable in all years since he placed the property in service, using the method would have been allowable when he place the property in service. | |
