How is land appraised for depreciation?

Question

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

Do they use the purchase price of the land ?

Chris K. · Answer

@Lance Lvovsky

Correct. I think I didn’t ask my question correctly. Say I buy an investment home for 400k. How is my cost basis for depreciation calculated? (House- Land) but since land changes in value how do I know what value the land is given?

Michael Plaks · Answer

@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.

Basit Siddiqi · Answer

As others have mentioned, there are a couple of different methods to put a basis to land. The easiest is through the help of the county assessor.

Lance Lvovsky · Answer

@Chris K.

One method is reviewing appraisal data for the local county office to determine allocations between land and house.

Lance Lvovsky · Answer

@Chris K.

You cannot depreciate land.

Christopher Smith · Answer

The land is not depreciable. But if you're asking how is the value attributable to any land component of a given property acquisition determined, any reasonable method will suffice (e.g., allocating the land value based upon local property tax valuation ratios might be acceptable).

How is land appraised for depreciation?

Most Popular Reply