Is Land Value determined at purchase even if rented years later?

Question

I purchased a home in 2020 when Portland Maps says the land value was $282,500. We lived in it for about 20 months and then started renting it out in 2022 - current assessed land value is $327,500. As I prepare for taxes, I'm trying to figure out which to use. The land value has shot up $45K in 2 years so it's a relatively decent chunk of depreciation that I'd be missing out on if I went with the current assessed land value.

Robert E Thompson · Answer

"Can't give tax advice" disclaimer, but as I understand it, based on the fair market value or adjusted basis when the property is turned into a rental - whichever is less. But it is not determined by what the assessed value (though this can serve as a guide, if you like). I would just make sure whatever percentage of the property that you assign to land vs. structure is defensible - how aggressive you want to be is a bit of a judgement call.

Natalie Kolodij · Answer

You are going to use:

Purchase price + closing costs when purchased for your adjusted basis. THEN

You will use the counties ratio from the year it was put into service....to determine it's building vs. land value.

The specific amounts don't matter, it's the ratio.

So if they say land is worth $327,500 in 2022 when you started renting it ....and they say building value is $500,000

You take $327,500/ $827,500 * Your cost basis of what you actually paid= your land value

And $500,000/$827,500* Your cost basis of what you actually paid= your building value

Is Land Value determined at purchase even if rented years later?

2 Replies