How is land appraised for depreciation?

[Chris K.]

How is land appraised to calculate the cost basis for depreciation?

Do they use the purchase price of the land ?

[Michael Plaks]

@Chris K.

The IRS accepts "any reasonable method" for land allocation. It's up to you to choose one.

The most common methods are:

• county assessment
• professional appraisal
• local Realtor's opinion
• comparable sales of undeveloped land in the area

You can also choose whether you apply the $ number or the land/improvements ratio. Here is what I mean. Let's say that the county assessment states that the property is worth $300k, of which $75k (25%) is land. You bought the property for $400k. You have two ways to apply the assessment to your number:

A. Dollar number: $75k. Then you have $75k land, and the remaining $325k for the building.

B. Land to improvements ratio:  25%/75%. Then you have $100k land, and the remaining $300k for the building.