Depreciation basis

[AccTaxMan]

Is it a commonly acceptable way to allocate 70% of a rental property's purchase price to the building (depreciable) and 30% to the land (non-depreciable) ?

[solomon]

Don't think that works on audit. I use for documentation the tax appraisal ratio of land to structure.

[BOB W]

Is it a commonly acceptable way to allocate 70% of a rental property's purchase price to the building (depreciable) and 30% to the land (non-depreciable) ?

I guess it all depends on the size of the plot of land, where the land is located ( sea shore, lake front, farmland or mountain top) and the size of the home (1,500 sq ft or 5,000 sq ft) as it relates to the land size and its value.

To give a flat % is hard to do but I have been know to use 20% on occassion based on facts and circumstances.

[erchess]

What I have actually done

for urban and suburban lots is assume that the house is 80% of the value and back away a little from that in the case of rural lots bigger than an acre or two especially if there were anything obvious such as trees, water, or trails to enhance the land value. But wait, it gets worse. I just asked the taxpayer for his or her recollection of what they paid and best estimate of what they could now get for the property as well as best estimates of major repairs and renovations. (The point is not that I asked for the wrong information but that if the taxpayer were to assert that I made the figure up out of thin air I would have not a shred of evidence otherwise.).

It's news to me that a property tax valuation specifies anything other than a total value for everything. I'm certainly going to find out if we do that in NC. I'm also going to get and keep a written statement even if it's just my organizer signed by the taxpayer. I probably would have done that last year but for some reason no client began depreciating a home or home office last year even though a number continued depreciation begun in prior years.

I do have a question though. We all know that basis for depreciation is the lower of adjusted basis or fair market value at the time you begin depreciation. However what if fmv declines during the time of depreciation? Do you have to change anything? Before last year I usually got a quizzical look when I asked if the value had gone up since they bought it. Of course the value or real estate had gone up. I have heard rumors though that the value of real estate is now declining.

[BOB W]

for urban and suburban lots is assume that the house is 80% of the value and back away a little from that in the case of rural lots bigger than an acre or two especially if there were anything obvious such as trees, water, or trails to enhance the land value. But wait, it gets worse. I just asked the taxpayer for his or her recollection of what they paid and best estimate of what they could now get for the property as well as best estimates of major repairs and renovations. (The point is not that I asked for the wrong information but that if the taxpayer were to assert that I made the figure up out of thin air I would have not a shred of evidence otherwise.).

It's news to me that a property tax valuation specifies anything other than a total value for everything. I'm certainly going to find out if we do that in NC. I'm also going to get and keep a written statement even if it's just my organizer signed by the taxpayer. I probably would have done that last year but for some reason no client began depreciating a home or home office last year even though a number continued depreciation begun in prior years.

I do have a question though. We all know that basis for depreciation is the lower of adjusted basis or fair market value at the time you begin depreciation. However what if fmv declines during the time of depreciation? Do you have to change anything? Before last year I usually got a quizzical look when I asked if the value had gone up since they bought it. Of course the value or real estate had gone up. I have heard rumors though that the value of real estate is now declining.

To the best of my knowledge once a value is established it is locked in, except if altered by the IRS.

[Davc]

To the best of my knowledge once a value is established it is locked in, except if altered by the IRS.

Agree.@#$%^&*()_+