What is the primary consideration when determining the cost basis of a building for depreciation?

The primary consideration when determining the cost basis of a building for depreciation is the total cost required to acquire the asset and prepare it for its intended use. This includes not only the purchase price of the building but also any additional costs incurred to put the building into service. These additional costs can encompass expenses like legal fees, permits, installation of utilities, and renovation costs. By including all these costs, you establish a complete cost basis, which is essential for accurately calculating depreciation.

Understanding the complete cost basis is critical for effective financial reporting and tax calculations. Accurate depreciation reflects the true wear and tear on the asset and ensures that the business can benefit from tax deductions appropriately aligned with the use of the asset over its useful life.