When determining the basis for a rental property, what is typically subtracted?

In determining the basis for a rental property, the land value is typically subtracted because the basis is primarily concerned with the depreciable asset portion of the property. The basis for depreciation generally includes the cost of the property minus the value of the land, since land does not depreciate. By separating the building’s value from the land’s value, taxpayers can accurately calculate depreciation only on the building portion, which will affect their tax computations in terms of deductions available for the rental property.

The other considerations, such as the cost of renovations or improvements and the overall market value of the property, do not directly relate to the basis in the same way. Renovations can actually increase the basis, while market value fluctuates and is not used in determining the basis for depreciation.