What is better: higher depreciation or property tax bill

Question

Hello!

I was researching how to calculate depreciation on my first duplex that I bought and I was browsing through the county assessor website and noticed that my land value is $250k and the improvement value is $28k. Which I thought was odd because the structure seems in good condition. Upon researching, I saw that the improvement value dropped from $154k in 2010 to $25k in 2012 (when there was a change in ownership), and the land value stayed roughly the same (around $200k). I checked on my neighbors land vs improvement value and generally it seems like their improvement value is higher than their land value.

I haven’t called the assessors office to dispute that because I want to know what makes more sense: to depreciate more on my taxes or to increase my property tax bill.

If I understand correctly, depreciation is roughly improvement  / land value * purchase price? Then divide by 27.5 years. This brings me roughly around $2800 or depreciation a year. Is this too little? I saw on another post that a member suggested to speak to the county assessor to get that straightened out because I am improving the property as well. But then I thought, if I dispute it, it could bring my property taxes up (0.79% assessed value in CA).

Should I try to dispute the improvement vs land value or just leave it as is?

Thanks!

Natalie Kolodij · Answer

There are a few issues going on here.

If your property value dropped in that manor- likely something happened to the house. It was re-assessed and wear a tear down, a fire, ect.

It would NOT be appropriate to use that allocation now. There are actually multiple ways to determine depreciable basis.

Depreciation is Calculated by taking the assessors:

Land Value/ Total Value =(X) * your purchase price = Your land Value

Example: You paid $400k for a house

Assessor Values: $290 total value, $200k building, $90k land

Building = 69% (200/290)

Land = 31% (90/290)

So your depreciable building value would be  = $276k ($400 * 69%)

Imp/Building Value/ Total Value = (Y) * your purchase price= Your depreciable building value (note you add in several closing costs and other to the purchase price here)

If you had an appraisal done- it likely provided you with a building value. In this situation this is what I would use.

You can also look at very similar local sales of land only, ready to build on. And if they're close and similar enough.

So can use that as your "land" portion, and the balance of your purchase price as your depreciable building value.

As mentioned there are actually over 7 ways that have been tried and true in court cases - This is really something your Tax professional should be figuring out because it can be a big part of your tax strategy.

Feel free to PM me with any questions or for help with the allocation.