High-rise condo depreciation: how much land value tot exclude

[Ted R.]

Great forum discussions here.... I read several relevant threads but my question focuses on how to split between land and building value in a high rise condo for depreciation purposes.

I purchased the condo 10 years ago for 250k in a commuter town in the NYC suburbs (downtown highrise building w/300 condo apartments; no real vacant land nearby for price comparison purposes). The condo includes in the deed 0.25% common interest (i.e. LAND and other common elements).
FMV in 2012 >300k, according to comps from sales. Since purchase price < FMV I will need to use the former for depreciation.

I moved out in mid 2012 and have been renting it since; now I need to calculate depreciation since the conversion to rental.

The original appraisal does not split between land and building value. The 2012 town tax assessor's values the condo at less than half FMV. The land is assessed at 22k and the building at 90k for a total of 112.

I see 3 options of splitting land vs building value:

1) assign 22k to land value (simply per tax assessment) and use 228k for depreciation. That would be about 10% value for land.

2) use the ratio between land and building from the city tax assessment and scale it to the purchase price (of 250k). i.e. land value = ~50k and depreciable building portion =~ 200k. That would give about 20% value to land.
BTW if 50k = 0.25%, the cost per acre of land would be 9 milion :)

3) Another option that I saw elsewhere is that some CPAs claim that condos in high-rises have no land value... so basically use 250k for depreciation and 0% value for land. Would that even fly in case of an audit?

x) The last option would be to get a new assessment for land vs building value but I doubt I can get that done by 4/15.

I am interested in your learned opinions :)

[Dave Toelkes]

You paid $250K for the condo which includes (by deed) a portion of the common elements that we will call "land" for depreciation purposes.

If you can get the tax assessment history for the complex from 10 years ago, you can see what the assessed value of your share the common elements was vs the total assessed value of the condo. Divide the assessed value of the common elements by the assessed value of the total property. Multiply that percentage by your $250K purchase price to determine how much of your condo purchase price to allocate to the land.

If you can't get the assessment from 10 years ago, use the current tax assessment in the same way. Divide the tax assessor's value of your share of the common elements by the value of the condo. Multiply that percentage by $250K to determine the value of your non-depreciable land.

The fact that your deed says you have a 0.25% ownership interest in the common elements is just a distraction here and is not relevant information in answering your question.

Your option one is not correct because you are using the current assesed value of the "land" and subtracting that from your actual purchase price. That does not accurately represent the value of the land in relation to the value of your property.

Your option three is a popular choice because the value of the land usually turns out to be such a small number when compared to the purchase price, but I suspect the IRS will have a problem with this if you were audited.

Option four is viable, but you already have all the information you need from your tax assessment. Why pay for information you can determine from other sources for free?