Rule of Thumb - Rental FMV split between land and building

[bbrownatl]

Just curious how others handle this matter. A client of mine moved to another state and converted their prior residence to a rental property and it has been rented ever since. My question, how do you allocated the FMV of the rental property between land and building for purposes of depreciating the building. Is there a rule of thumb or something more technical that I'm missing? There is no appraisal at the time of conversion. Any input appreciated.

Much thanks.

Brian

[S T]

Could depend on the State Values

I have always used the property tax assessment, as it gives the assessor's land to bldg ratios.

Sandy

[bbrownatl]

That works!!

Perfect. Much thanks.

Brian

[kpangelinan]

Just curious how others handle this matter. A client of mine moved to another state and converted their prior residence to a rental property and it has been rented ever since. My question, how do you allocated the FMV of the rental property between land and building for purposes of depreciating the building. Is there a rule of thumb or something more technical that I'm missing? There is no appraisal at the time of conversion. Any input appreciated.

Much thanks.

Brian

I've used those as well.......but have found that some towns don't reevaluate properties for years and could be well undervalued or in this economy, just the opposite. I've used real estate assessments from a local Realtor.....they've always provided them free as they want to earn your business down the road. This to avoid the high appraisal fees.

[S T]

Good Point

Coming from California and they re-value each year, Huge changes there in the last couple of years both land and bldg values have decreased and sometimes the percentage ratio changes as well, but there is an annual assessment.

now that I am in NC only re-evaluates every 5-7 years, so remains constant until that re-evaluation year.

Are the realtors in your area able to provide the changes on the land to bldg values and provide you with amounts for percentage ratios

I will have to check with our local realtor here in NC?

Sandy

[kpangelinan]

Small towns watch out....

I've had some small towns not re-eval for 20 years as they never had money in the budget to pay anyone to do it. I wonder if they actually did it, the increase in taxes would pay for this person, eh?

[oceanlovin'ea]

Best I can remember if we had something like that and couldn't establish a value for the land we would take 20% of the amount we did have and allocate it to land.

Don't know how accurate that is or if it would stand up to an audit, but that is what I learned during my time at HRB.

Linda, EA

[kpangelinan]

Best I can remember if we had something like that and couldn't establish a value for the land we would take 20% of the amount we did have and allocate it to land.

Don't know how accurate that is or if it would stand up to an audit, but that is what I learned during my time at HRB.

Linda, EA

Yeah, that's held up in audits I've done. I've used 10% before....depends on the local, amount of land involved, etc.

[S T]

Years Past

In Calif that would not have worked, Assessor was placing 45% - 65% to land value, probably not now

Sandy

[Lion]

Land

Would never work in my area. Even when at HRB, it was more like 80% land. So many are tear-downs to build the McMansions, that it's almost ALL land. I use the property tax card when it's recent, realtor advice otherwise. When going through an audit with rental property, the auditor was pleased that I used the town's evaluation ratio from close to the year when client turned property into rental.

[Burke]

Coming from California and they re-value each year, now that I am in NC only re-evaluates every 5-7 years, so remains constant until that re-evaluation year.Sandy

I believe it is the locality which does the evaluations, not the state, so the time frame can vary widely from burg to burg.

[taxea]

can you take the FMV at time it became a rental if that is more than the original cost plus improvements?

[S T]

Basis for Depreciation

From Pub 537

Basis of Depreciable
Property
The basis of property used in a rental activity
generally its adjusted basis when you place it
service in that activity. This is its cost or other
basis when you acquired it, adjusted for certain
items occurring before you place it in service
the rental activity.
If you depreciate your property under
MACRS, you may also have to reduce your
basis by certain deductions and credits with
respect to the property.
Basis and adjusted basis are explained
the following discussions.
If you used the property for personal
purposes before changing it to rental use,
its basis for depreciation is the
lesser of its adjusted basis or its fair market
value when you change it to rental use. See
Basis of Property Changed to Rental Use in
chapter 4.