Rental Property Cost Basis and Depreciation Records: What Your Bookkeeping Must Keep

What is a property's basis record?

The running record of what the property cost: the price, the settlement costs that belong with it, and every improvement added later. Each line keeps its source document, its date and its amount.

The basis record lives on the balance sheet, one set of accounts per property. It is one part of the system in the rental property bookkeeping guide, where every property keeps its own records.

The record matters most at 2 moments: every year end, when your CPA updates the depreciation schedule, and the day the property is sold.

What goes into basis at the purchase?

The price plus the settlement fees and closing costs of buying. The costs of getting the loan stay out and follow the loan. The purchase closing statement is the source, line by line.

The IRS says in Publication 551, Basis of Assets that basis includes the settlement fees and closing costs for buying property, and not the fees and costs of getting a loan. That publication lists which fees are which.

Property 1 is 275 Demo St, Davis. Demo Rentals LLC bought it on Mar 15, 2024. Here is how its purchase closing statement became the basis record.

Demo Rentals LLC is a sample company.

Each line traces back to one line on the statement. We turn a closing statement into entries, step by step, in purchase closing statement bookkeeping.

Why is basis split between land and building?

Land is not depreciated and the building is, so the cost is split between them. Your CPA sets the split. The books record it and keep its source, such as the county assessor’s ratio.

The split comes from your CPA. The books record it with its source, so the depreciation schedule and the basis record always start from the same two numbers.

Land plus building equals the basis at purchase exactly.

The books keep the split and a copy of what it was based on. If the CPA changes it, the change is dated and the reason is noted.

How are improvements added to a property's basis later?

Each improvement becomes its own line on the property's record, with its invoice, date and amount. It is not folded into the original building figure, because your CPA needs its own date and cost.

On May 14, 2026, Example Roofing Co replaced Property 1's roof for $14,800, paid from checking. We cover deciding that a cost like this is an improvement and not a repair in repairs vs improvements on a rental property.

Accumulated depreciation is recorded separately, at the CPA's figure.

What does a BRRRR property's cost record look like through the rehab?

The purchase, the settlement costs and every rehab invoice, on one property record. Loan points and refinance costs stay with the loans. Interest and insurance during the rehab sit on their own lines for your CPA.

Property 2, 1640 Test Way, Vacaville, was bought on Jun 2, 2026 and rehabbed from Jun 10, 2026 to Oct 9, 2026. Its record runs from the purchase through the last rehab invoice.

• Points on the purchase loan, $3,600: loan costs, kept with that loan.
• Refinance loan costs on Oct 22, 2026, $4,800: loan costs, kept with the new loan.
• Interest during the rehab, $6,600 in 4 payments: its own line, tagged to Property 2.
• Insurance, $1,380 paid Jun 2, 2026: its own line, tagged to Property 2.

Whether any of the interest or insurance belongs in basis is your CPA's decision. Keeping them on their own lines means the decision is one entry either way. Property 2's land and building split is also the CPA's to set. We follow the whole sequence through all 5 phases in BRRRR bookkeeping.

What records follow a flip that becomes a rental?

All of them: the purchase statement, every rehab invoice, the holding costs and the dates the use changed. The project's cost record becomes the rental's basis record, and your CPA sets the placed-in-service date.

A flip that is kept as a rental changes use: it was held to sell, and now it is held to rent. The cost records follow the property across that change. Nothing is restarted.

The handoff runs the same way on every property that is rehabbed and then rented. Property 2 shows the dates: the rehab finished on Oct 9, 2026, the deposit arrived on Oct 12, 2026 and the lease began on Oct 15, 2026. Property 1 was bought on Mar 15, 2024 and first rented on May 1, 2024.

1. 1Close the rehab record on the day the work finished, with every invoice coded and paid or listed as owed.
2. 2Keep the purchase closing statement and the rehab invoices with the property, not with the project file that is ending.
3. 3Note the dates that show the change of use: the work finished, the property was listed or advertised for rent, the deposit arrived and the lease began.
4. 4If the property moves from one LLC to another, record the move in both sets of books on the same date and the same amount.
5. 5Open the rental record: rent, deposits and operating costs from the lease start, on the same property.
6. 6Send the record to your CPA, who sets the basis, the land and building split and the placed-in-service date.

Which date starts depreciation, for a property, is your CPA's call. The books hold the dates the call is made from: the purchase, the end of the rehab, the deposit and the first lease.

What do the books record for depreciation?

The figure from your CPA's depreciation schedule, once a year, to each property's accumulated depreciation. The books do not compute it. They keep the records the schedule is built from.

The schedule itself is your CPA's. Each year end we post the CPA's figure to accumulated depreciation for each property, and file the schedule with the basis record. These records go into the package in the year-end bookkeeping checklist.