cost basis for depreciation: county assessor's or insurance company's?

[Edita D.]

Hey guys!
Do you use the county assessor's statement or the property insurance's replacement cost as your COST BASIS for the building/structure of your property?
According to property assessor, the cost basis of the structure of our 1 unit is 60000$, BUT according to our insurance company, it will take 112000$ to re-build.
Last year we depreciated using 60000$ cost basis, but I am reading the book that suggests different methods, making a point that there's no right one.

It's a huge difference, and according to the book ("Every landlord's tax guide" by Nolo"), usually county assessors UNDERESTIMATE, which gives me SMALLER deduction if I use their data!!!

1.What do you use as a cost basis for depreciation?
2.Is it legal for me to claim insurance company's cost basis if last year I claimed county tax assessor's? Can I make a switch?

Thanks!
Edita

[Jon Holdman]

If you buy a property, basis is simple. Assessor's value, insurance value, and fair market value are all irrelevant.

It starts with the price you pay.
You add costs incurred as part of the purchase.
You then add capital improvements.
You subtract depreciation taken or allowed (whichever is more.)

I think Edita D. is really getting at the value of the improvements to be used for depreciation. That would some a portion of the price you paid. Part of that price is land and part is improvements. You only depreciate the improvements. Not sure the term "basis" comes into play. Certainly not in the same sense as basis is used when you figure your gain on a sale.

Edita, if you were doing depreciation based on the assessors value rather than your purchase price, you will need to refile corrected tax returns for those years. As Steven says, you may want to use the ratio from the county assessment to split your purchase price into land and improvements. But you cannot use their actual values.

In addition to that amount, if you make capital improvements, you can, in many cases, depreciate those faster. Steven Hamilton II posted recently about these schedules. Carpets, for example, can be depreciated over five years. And, if you take something out of service before its fully depreciated, you can take the remaining depreciation at that time (as I understand it, my CPA does all the gory details.) So, those new carpets that are being depreciated over five years get a big lump of depreciation at three years when they're totally trashed.

So, those new carpets increase your basis in the year you put them in. Then, each of the next five or six years (five years of time is usually spread across six tax years) you take a portion of the costs for depreciation and reduce your basis by that same amount.

Now, under some circumstances, fair market value does come into play. If you inherit a property, for example, your basis for that property is the fair market value on the date of the death.