2. Deed the land to a trust you set up with an independent trustee
3. Make a trusted adviser the independent trustee and your children the beneficiaries of the trust
4. Create land lease
The lease would the be deductible. The delta between your marginal rate and that of your children seems to be the savings.
Has anyone ever heard of this? If you own quite a bit of expensive land this would seem to be something potentially fairly lucrative to generate some extra deductions for those paying high taxes.
Lets say you owned a mobile home park where are the homes were owner occupied. The accouterments of the land could be depreciated, even though the land could not.
Or say you owned a surface parking lot, the asphalt could be depreciated though the land itself could not.
Or at an apartment complex, the swimming pool, tennis courts, playground equipment, and other improvements could be depreciated though the land it self could not.
Somebody I know owns land under a national chain hotel. He doesn't own any of the improvements as the sidewalk, driveway, parking lot etc belong to the hotel owners, so my friend owns no depreciateble asset.
I am stuck on part #1. In the example in the article, the author uses a $120K SFR with $20K as land. The author then "breaks" (Bifurcation is the term) the land from the improvement so each piece can be encumbered. For a Wake county property, and I guess most of the rest of the country, the land and improvement are contained in one parcel identifier and one real estate identifier. I can't figure out how to deed "just the land". From what I've found, Bifurcation will create "land" and "personal property". Then the personal property would not be subject to real property depreciation, which defeats the objective.
Has anyone really done this with a residential property? This concept sounds more like theory than something the average person can apply. This concept may be another question for an accountant like @Steven Hamilton II
Seems to me that this concept is better suited to a MHP, not a SFR.
2. Deed the land to a trust you set up with an independent trustee
3. Make a trusted adviser the independent trustee and your children the beneficiaries of the trust
4. Create land lease
The lease would the be deductible. The delta between your marginal rate and that of your children seems to be the savings.
Has anyone ever heard of this? If you own quite a bit of expensive land this would seem to be something potentially fairly lucrative to generate some extra deductions for those paying high taxes.
Want the truth? You could accomplish the same thing keeping the property in a partnership with your kids. The problem comes the land is never actually depreciated. You simply are adding a deduction by paying rent. Instead split the rental income 3 ways or consider a Family Limited Partnership.
If you have a business, always have the real estate held separately from the business.
I spoke to our accountant about this and it didn't seem to make sense unless the land had a LOT of value relative to the overall project. Any other comments are appreciated.
Lets say you owned a mobile home park where are the homes were owner occupied. The accouterments of the land could be depreciated, even though the land could not.
Or say you owned a surface parking lot, the asphalt could be depreciated though the land itself could not.
Or at an apartment complex, the swimming pool, tennis courts, playground equipment, and other improvements could be depreciated though the land it self could not.
Somebody I know owns land under a national chain hotel. He doesn't own any of the improvements as the sidewalk, driveway, parking lot etc belong to the hotel owners, so my friend owns no depreciateble asset.
There are some components of the land that could be depreciated, but are typically not itemized as such.
For example:
Trees & shrubs have a certain life span and destroyed over time
Sidewalks
Driveways
Underground pipes
Septic systems
Parking lot
Outside light standards
No, that is, nor is any of this land, these are all improvements. Land is absolutely under no circumstance in this universe a depreciated asset.
Trees are not depreciated, they are assets that are depleted such as crops are. Depletion is much like depreciation but it is not the same.
Everything you listed are improvements to land, including the wire running under the paved parking lot to the light poles.
Land is the dirt, it is never under any circumstance depreciated.
What is mentioned above is the lease being subject of depreciation, not the dirt.
There is only depreciation or depletion under tax code, it is the nature of the tax beast, it is an economical concept as to devaluing an asset arising from it's use which may or may not be a financial limitation or reduction, but done to illustrate the lesser of utility of improvements.:)
Yes, the ex was the comptroller for Boise Cascade paper mill in LA a few thousand acres of long leaf pines are depleted, I can see trees being improvements as well. My point was the dirt not being depreciated. :)
Yes, the ex was the comptroller for Boise Cascade paper mill in LA a few thousand acres of long leaf pines are depleted, I can see trees being improvements as well. My point was the dirt not being depreciated. :)
Bill,
You've never been to northern Alberta. Whether the tax code allows for it or not, the dirt is being depreciated ... an area larger than "BosWash" and growing.
No idea what you're talking about Roy. Two sides of depreciation and depletion, one is taxes, the other is under GAAP, accounting and economic factors to address the utility nature of an asset, consumable assets, dirt is not consumable. You can deplete the asset, do away with it for example, a rock quarry or mining minerals out of the land. You can certainly make land less valuable, but you'll never do away with it to the center of the earth. :)