Form 3115 filing and adjusting home value for depreciation

[Thad Wharton]

We are quite new to real estate and we purchased the home we rent out the ADU for as COVID was flaring up. We are now doing a Form 3115 to reflect the true value of the home we are depreciating via a Cost Seg study (for some reason the home was estimated at only 20% of the sale price the first year we did taxes). Question- ***Should we get an appraiser to give us a more accurate value than the roughly 80% land / 20% structure value that we originally had? We have heard it could be more like a 50 / 50 split or a 30 / 70 split? What do you folks think for a landlord in Los Angeles? A home across the street sold at that same time 35% less than we paid so the land value we are currently depreciating is very far off!

[Bill B.]

You're obviously only depreciating and doing the cost segregation on the adu you're renting out, not the entire home/property/purchase price. Correct? You are still renting out the ADU today, and only the ADU correct?

20% sounds almost too high to me. Especially in parts of LA where it could be 80/20 land over all property and then 80/20 for the adu, leaving you closer to 90-10 or 95-5%. Where only 5-10% is depreciable. 

Ps. You’re going to be taxed on the depreciation you could have taken during previous years even if you didn’t. So it might be time to find a new CPA. 

Pps. A cost segregation for just an ADU doesn't seem like it would be worth the cost. Especially in LA. Remember, you're depreciating the cost then, not the replacement cost today. If you tore down the ADU, how much less could you sell for? That's the MAX you could start with.