Is land should be valued at 10% or 25% for a rental property?

[Kate K.]

Our Tax Accountant from Block Advisors moved on with his career and we had to find a new CPA/Tax Accountant. We found one that's seem to be experienced and knowledgeable. He is also a Real Estate Attorney. His advice is to make Block Advisors to amend the 2019 tax return. He says that they valued the land too high in his opinion and that we should be depreciating higher building costs so we can save money. Manager from Block Advisor's Office, where we used to go to, insists that land on rental properties should be valued at 25%, and that 10% is too low.. Plus, because this new CPA asked me questions just to confirm that the reason why there is a difference between "basis" and "rental cost" of the property on our depreciation schedule from 2019 is because of land, the Manager at Block Advisors said that if this CPA asks me such questions, then he doesn't know how to do his job, as these are the basics of CPA class (land is not to be depreciated). Though he just wanted to confirm the difference is because of the land, nothing else. Our depreciation schedule doesn't really have much information in it. That's why this new CPA probably asked. I am not a CPA myself so I don't know either way, that's why I had to ask her (that Manager) to find answers. If I were a CPA, I would be doing taxes myself :)

Don't get me wrong, I would love we to save more money, but I wouldn't want to save money now and look at having penalties from IRS later.

So what is the correct percentage to value land on Rental Property - is it 10% or 25%? And does it matter which State it is at? We are in Northwest suburbs of IL. 

Your advice would be very helpful in deciding for us to choose the right Tax Accountant to do our taxes. Thanks!

[Ashish Acharya]

Originally posted by @Kate K.:

Our Tax Accountant from Block Advisors moved on with his career and we had to find a new CPA/Tax Accountant. We found one that's seem to be experienced and knowledgeable. He is also a Real Estate Attorney. His advice is to make Block Advisors to amend the 2019 tax return. He says that they valued the land too high in his opinion and that we should be depreciating higher building costs so we can save money. Manager from Block Advisor's Office, where we used to go to, insists that land on rental properties should be valued at 25%, and that 10% is too low.. Plus, because this new CPA asked me questions just to confirm that the reason why there is a difference between "basis" and "rental cost" of the property on our depreciation schedule from 2019 is because of land, the Manager at Block Advisors said that if this CPA asks me such questions, then he doesn't know how to do his job, as these are the basics of CPA class (land is not to be depreciated). Though he just wanted to confirm the difference is because of the land, nothing else. Our depreciation schedule doesn't really have much information in it. That's why this new CPA probably asked. I am not a CPA myself so I don't know either way, that's why I had to ask her (that Manager) to find answers. If I were a CPA, I would be doing taxes myself :)

Don't get me wrong, I would love we to save more money, but I wouldn't want to save money now and look at having penalties from IRS later.

So what is the correct percentage to value land on Rental Property - is it 10% or 25%? And does it matter which State it is at? We are in Northwest suburbs of IL. 

Your advice would be very helpful in deciding for us to choose the right Tax Accountant to do our taxes. Thanks!

 If you don’t want to go with the blank 10% or 25%,  you need to look at the tax record and see how much your county valued your land in proportion to your property. You can use the same ratio and apply that to your purchase price/basis.