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US IRS Form 4562 line 19h(c) …

Is the basis the market value in the year "placed in service" (first rented out)?

Or do we update the value every year?

The former makes more sense to me, but someone or something gave me the impression it is the latter.

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Once the basis is set, it doesn't reset. It gets adjusted (down) by the depreciation allowed (or allowable). The basis is not necessarily market value though. There are non trivial rules to determine basis.

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  • So each year, we change the basis to the previous year's basis minus the previous year's depreciation? That's different from the way "basis" is done for capital gains.
    – WGroleau
    Commented Nov 25 at 6:48
  • No, you don't change it. There are several columns, basis is in column (c) - that never changes once set. The adjustments are recorded in column (g), which is what ends up being your depreciation expense and an adjustment to basis when you sell the property.
    – littleadv
    Commented Nov 25 at 7:40
  • I specified (c), hence my hesitation on "adjusted down"
    – WGroleau
    Commented Nov 25 at 12:46

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