Cost basis of rental property question

[Justin Fox]

I have a single family home that I refinanced in 2010 and paid off completely in July of 2013.  The home is now a rental property, and has been since 09/01/2014.  I didn't take the depreciation deduction on my 2014 return (there was no designated area to do so using the H&R block tool).  I have documentation reporting the principle and interested paid total.  I also have the Title Fees from the original refinance in 2010.

We built the home in question, so the land was given to us.  The loan was a construction loan.  Since the loan funds were strictly spent on the construction, would that mean the land value would play no part in my depreciation calculation?

So, would the cost basis for the home be the ((principle paid + interest paid + original title fees) / 27.5)?

Thanks for any help and I'm sorry if any of this information is hard to follow,

Justin

[Brandon Hall]

@Brie Schmidt is pretty close! Just a couple of additions for you @Justin Fox:

1. Because this was previously not a rental, when you converted it to a rental in 2014, your basis is the lesser of the Fair Market Value (FMV) or the adjusted basis. FMV can be supported by comps or an appraisal. Adjusted basis is, as Brie said, the cost you incurred to improve upon the land and any additional improvements you made over the lifetime of the property.

2. You were not "in business" prior to the property being rented so you cannot deduct business expenses. However interest would likely be deductible on Schedule A up until the point it was rented.

3. Refinancing a personal use property comes with certain costs that are deductible, not deductible, or added to the property's adjusted basis. See this link for more details:

http://www.nolo.com/legal-encyclopedia/home-purchase-costs-you-cant-deduct-add-tax-basis.html