Client purchased new commercial office building in mid-October, 2006. This is his new business' only asset. Question 1 - Would mid-month or mid-quarter convention be used? Question 2 - How do you accurately determine the non-depreciable land value of the total purchase? In this case, the property was purchased for $500,000. The appraisal (which came in quite a bit higher than the actual purchase price) reported that 45% of the appraissed value was land. Question 3 - Is using the appraisal as an allocation method for land value and building value reasonable? Thanks in advance to all who can offer some insight on any of these questions.
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Land value
I would let my software figure out the mdi-quarter question but I believe real estate is always mid-month.
For land value versus improvements value, I usually use the appriaser's report. you can obtain this from the country appraiser's office and in many cases right on the internet since it is public information. I use the ratio of the appraised value of the improvements (building) to the total appraised value times the purchase price. The purchase price should be the real FMV if it was an arms length transaction. The appriased value only affect the loan to value lending rate usually.John Rumbold, EA, CFP(R) -
Value
John - Thanks for your reply. Are you referring to assessed value and the assessors office? Thanks again.Comment
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Assessed value
I'm sorry. yes, I mean assessed value. I got my "a" words mixed up. The assessed value is not often the real FMV but I use that ratio as times the purchase price since it is something that can be defended at an audit.John Rumbold, EA, CFP(R)Comment
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