Land value, improvements and depreciation
This is a scenario that I have not run across before. These numbers are roughly based off of the auditor's website.
A commercial property has a higher land value (100k) than the depreciable improvement value (60k). The building is very run down and could be worth a lot more if it would be renovated and this is what I am planning to do. Normally when you purchase a property you base the depreciation off of the auditor's numbers. So the question is...
How do I increase the depreciable (improvement) amount on my taxes after I renovate the property? Do I have to wait for the auditor to revalue the property of should I just get an appraisal for documentation? If I do get an independent appraisal which I use on my taxes and the next year the auditor reappraises for a different number does the IRS begin to ask questions?
Like any investor, I would like to maximize my depreciation and minimize taxes on the property at the same time. Any ideas? I want to make sure that my appraisal does not trigger any IRS "oversight".
Also, if I plan on renting out the building how do I account for the upcoming property tax increase in the lease before it actually goes into effect? I would hate to write a lease then lose a good portion of the cash flow when the auditor reassesses the property.