Depreciation Basis for BRRRR property

[Andrew Namkoong]

Hi everyone,

I am trying to figure out what the depreciation basis will be for the property that I will be closing in two weeks.

I am buying a property with full cash, doing some minor exterior rehabs (place is already rented out to a tenant) and then going to do a cash out refinance within 1-2 month. I found a bank that would do a cash out refi with no seasoning + on ARV.

My question is: 

Purchase price: $31,500

Expected Rehab: $3,000

Expected ARV appraised by the bank: $42,000

Land value on tax assessor's website: $11,500

Is my depreciation basis 31,500 - 11,500 = 20,000? or is it 42,000 - 11,500 = 30,500?

Thanks in advance!

[Christopher Smith]

Your depreciable basis is what you paid for it 31,500 (less any value allocated to the land), the other information you have provided has no relevance. Now with regard to your rehab costs, you will need to determine whether those costs get capitalized or expensed based upon the nature of those expenditures.