We are currently in the process of purchasing our first investment property, (cash purchase). It is an old farm house on 9 acres. We are dividing it into 3 acre tracts and keeping the house and 3 acres for a rental. Our CPA has advised us to get an appraisal of all 3 parcels, including the house which needs a ton of work. She says she needs this to offset the capital gains if we sell the land immediately. I haven't read of anyone getting an appraisal on the front end of a cash deal? Does this sound like good advice?
@Joe Atkins I always get an appraisal at the front end. For the reasons your accountant mentioned and also to verify your own valuation. If you were financing it, the lender would demand it.
Thanks @Jim Pellerin ! I guess I should listen to my CPA. We are getting a great deal, so I know the valuation is good for our area. I didn't want to waste that money if it wasn't necessary.
@Joe Atkins - As a CPA, I highly recommend always listening to your CPA.
haha! Touché @Jake Hottenrott
@Joe Atkins The reason for the appraisal is so that you have written proof from a professional who is qualified in the subject matter, the appraiser, for the cost basis to be reported for the land sale. You and your tax preparer do not want the IRS giving you a hard time about the cost basis allocations.
If the acres of land are sold right away, that do not have a building on them, your hope is that the appraisal report will identify those land plots as more valuable than the land the house is sitting on.
This could be more valuable than simply assigning equal cost basis amounts to each acre of land. And an appraisal will help justify this approach. If the land mentioned is worth less than the land with the building, you do not want to get in trouble for simply allocating cost basis evenly per acre. An appraisal could save you from this mistake.
Those are the reasons that come to mind as to why a tax person would be requesting an appraisal.
Thank you @Ben Raygor . I appreciate you going into detail. This further explains what my CPA was talking about. She was worried about an audit. I personally don't understand why you can't assign a price per acre and how that would get you in trouble with the IRS, but I''m no CPA. The land with the house is probably worth more. It is the flattest land.The family has sold several parcels at the same price per acre. Thank you!