Homeowner · Member since 2008 · 23 posts · 0 votes
hi -- i've got a rental property I purchased this year -- I know for depreciation I have to pull out the land value -- is there any set way of doing that? can I just estimate about 20% of the purchase price?
Wow, son. Don't just use 20%. You can do it a couple of ways.
Find out what the comps are for raw land by acre in the area are and multiply it by the amount of acreage that came with the property. Take that figure out of the purchase price for depreciation.
Another way is to look on the real estate assessment for the property to figure out what the land portion is on the property tax and then take that amount out.
Looking at the property tax assessment may yield a lower amount to pull out of the depreciable figure and that is to your benefit.
I always used whatever the taxing authority allocated to land versus improvements. That way I could always justify my number. Never got called on it, and in the long run it won't matter.
Wow, son. Don't just use 20%. You can do it a couple of ways.
Find out what the comps are for raw land by acre in the area are and multiply it by the amount of acreage that came with the property. Take that figure out of the purchase price for depreciation.
Another way is to look on the real estate assessment for the property to figure out what the land portion is on the property tax and then take that amount out.
Looking at the property tax assessment may yield a lower amount to pull out of the depreciable figure and that is to your benefit.
The assessment procedure begins with establishing land value. Appraisal theory and state law require land to be valued as if vacant. This value is determined by analyzing sales of comparable bare land. Our next step is to study sales and market trends of improved (developed or built-on) properties in a selected area. This sales analysis is used to determine total market value based on square footage, year built and other characteristics of the property. From this total value, we subtract the amount determined for land. The balance is allocated to improvements.
Real property valuations are made by our staff of accredited real estate appraisers. The total valuation represents 100% of fair market value. Market value is the amount of money a buyer, willing but not obligated to buy, would pay to a seller willing but not obligated to sell. For residential parcels, fair market value is determined by analyzing recent sales of comparable properties in the same area. Commercial properties also may be appraised using this method or by using the income or cost approach. The appraisal method used will be the one that offers the best evidence of market value.
www$metrokc$gov/Assessor/RealProperty$htm
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Comparable Sales
The comparable sales method compares the donated property with several similar properties that have been sold. The selling prices, after adjustments for differences in date of sale, size, condition, and location, would then indicate the estimated FMV of the donated property.
If the comparable sales method is used to determine the value of unimproved real property (land without significant buildings, structures, or any other improvements that add to its value), the appraiser should consider the following factors when comparing the potential comparable property and the donated property:
1. Location, size, and zoning or use restrictions,
2. Accessibility and road frontage, and available utilities and water rights,
3. Riparian rights (right of access to and use of the water by owners of land on the bank of a river) and existing easements, rights-of-way, leases, etc.,
4. Soil characteristics, vegetative cover, and status of mineral rights, and
5. Other factors affecting value.
For each comparable sale, the appraisal must include the names of the buyer and seller, the deed book and page number, the date of sale and selling price, a property description, the amount and terms of mortgages, property surveys, the assessed value, the tax rate, and the assessor's appraised FMV.
The comparable selling prices must be adjusted to account for differences between the sale property and the donated property. Because differences of opinion may arise between appraisers as to the degree of comparability and the amount of the adjustment considered necessary for comparison purposes, an appraiser should document each item of adjustment.
Only comparable sales having the least adjustments in terms of items and/or total dollar adjustments should be considered as comparable to the donated property.
www$irs$gov/pub/irs-pdf/p561$pdf
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Section 6. Real Property Valuation Guidelines (IRS instructions to their employees)
1. Approach to Value --- The Valuation Process. The valuator should determine which methodologies are to be utilized in developing the opinion of value of the subject property. The valuator should consider the appropriate valuation approaches, such as the market approach, the income approach and the cost approach. Professional judgment should be used to select the approach(es) ultimately used and the method(s) within such approach(es) that best indicate the value of the property.
2. In the Market or Sales Comparison Approach, properties similar to the subject properties sold close to the valuation date are compared to the subject property. Adjustments are made for financing, condition of sale, date of sale, physical characteristics and location to indicate the value of the subject. Care should be taken to consider the number of sales available, their relative comparability, the degree and rationale for adjustments to the sales and the relative correlation and reliability of the value indications from the sales.
www$irs$ustreas$gov/irm/part4/ch42s06$html
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this method saved us $24k in taxes first year (Go zone)
The IRS says (I thought) you are suppose to use the same amount for depreciation year after year. But property values are always changing, sometimes huge. So if my property is worth 30% less this year, shouldn't my depreciation amount be less as well? (or vice versa if property values go up)
Depreciation is based on the value at the time you placed it in service. It is the value lost (depreciated) each year as a property ages. Everything has a useful life and loses value as it wears out and needs to be replaced. That’s why different items have different depreciation schedules . Differences in value are made up when you sell via capital gain (or loss).
Wow, son. Don't just use 20%. You can do it a couple of ways.
Find out what the comps are for raw land by acre in the area are and multiply it by the amount of acreage that came with the property. Take that figure out of the purchase price for depreciation.
Another way is to look on the real estate assessment for the property to figure out what the land portion is on the property tax and then take that amount out.
Looking at the property tax assessment may yield a lower amount to pull out of the depreciable figure and that is to your benefit.
Joe
In my county, the assessment value of land is FAR greater than what the per acre cost has been in that same area lately.
Then you don't want to use that. Use the comparable price of the land and save your comps with your tax return for that year. That is my preferred method anyway.
Is there a good online resource for estimating land comps?
I've tried googling and can't find anything to give me any clues on the land value for my area. Even the tax assessors office doesn't break apart the value of the land vs structure.
That is peculiar that they don't give a land vs building comparison. You might want to give them a call to check. Often it can be viewed as in the 10-25% range depending upon the location of the property. If it is a new purchase ask you realtor to check on comps for you.
Mark Spivey, my tax bill does not indicate what part of the assessed value is land and what is improvements, but the assessor does have it split out in their records. I can look it up online or call the assessor's office to get the breakdown.