Bonus Depreciation: Tax value or Purchase Price

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Bonus Depreciation: Tax value or Purchase Price

Trent Barga
Real Estate Agent · Dayton Ohio · Member since 2019 · 38 posts · 15 votes

Hoping one of you great people can clarify something for me. Looking at bonus depreciation and wondering if it is based on the county assessed value or purchase price?

We purchased a commercial building for $420k and the county has the improvements at $115k. I my mind doing a bonus depreciation wouldn't make sense if it is only on the $115k value. We have 6 other single family homes and have 2 high income earners so trying to bring our taxes down as much as possible.

Thanks!

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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
3y
Quote from @Trent Barga:

Hoping one of you great people can clarify something for me. Looking at bonus depreciation and wondering if it is based on the county assessed value or purchase price?

We purchased a commercial building for $420k and the county has the improvements at $115k. I my mind doing a bonus depreciation wouldn't make sense if it is only on the $115k value. We have 6 other single family homes and have 2 high income earners so trying to bring our taxes down as much as possible.

Thanks!

"Doinga  bonus depreciation" doesn't really make sense- I'm guessing you mean doing a cost segregation...to separate out components that qualify for bonus depreciation. 

Also- if you are both high income earners.....your passive losses from rental properties will not reduce your taxable income. 

If you apid $420k your depreciable basis won't be $115k. You need to divide that $115/ the total value of the property per the assessor. Then whatever that % is is what you'll apply to the $420k to get your depreciable basis. 

You may want to work with a good tax strategist. 
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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    3y

    The value of the land + improvements that you have on your balance sheet should equal your purchase price.   Your depreciation expense will be a function of the value of the improvements and the method you use for calculating depreciation (e.g straight line vs accelerated).

    As long as you have good justification for how you separate land + improvements, you are fine.  You do not have to use the tax assessment. If you live in Honolulu the value of the land would be a much higher percentage than in Ohio (where it appears you are from).  For our properties in Michigan and Indiana, we typically use around 15% of total purchase price allocated to land and the rest to improvements.

    1Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    3y
    Quote from @Trent Barga:

    Hoping one of you great people can clarify something for me. Looking at bonus depreciation and wondering if it is based on the county assessed value or purchase price?

    We purchased a commercial building for $420k and the county has the improvements at $115k. I my mind doing a bonus depreciation wouldn't make sense if it is only on the $115k value. We have 6 other single family homes and have 2 high income earners so trying to bring our taxes down as much as possible.

    Thanks!


     Your depreciation is based on your purchase price. Not the tax value. 

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    1Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    3y
    Quote from @Trent Barga:

    Hoping one of you great people can clarify something for me. Looking at bonus depreciation and wondering if it is based on the county assessed value or purchase price?

    We purchased a commercial building for $420k and the county has the improvements at $115k. I my mind doing a bonus depreciation wouldn't make sense if it is only on the $115k value. We have 6 other single family homes and have 2 high income earners so trying to bring our taxes down as much as possible.

    Thanks!

    "Doinga  bonus depreciation" doesn't really make sense- I'm guessing you mean doing a cost segregation...to separate out components that qualify for bonus depreciation. 

    Also- if you are both high income earners.....your passive losses from rental properties will not reduce your taxable income. 

    If you apid $420k your depreciable basis won't be $115k. You need to divide that $115/ the total value of the property per the assessor. Then whatever that % is is what you'll apply to the $420k to get your depreciable basis. 

    You may want to work with a good tax strategist. 
    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
    Kolodij Tax & Consulting
    WebsiteView Page
    2Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    3y

    Depreciable basis will be based on what you paid for the property.

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  • Trent Barga
    OP
    Real Estate Agent · Dayton Ohio · Member since 2019 · 38 posts · 15 votes
    3y
    Quote from @Ashish Acharya:
    Quote from @Trent Barga:

    Hoping one of you great people can clarify something for me. Looking at bonus depreciation and wondering if it is based on the county assessed value or purchase price?

    We purchased a commercial building for $420k and the county has the improvements at $115k. I my mind doing a bonus depreciation wouldn't make sense if it is only on the $115k value. We have 6 other single family homes and have 2 high income earners so trying to bring our taxes down as much as possible.

    Thanks!


     Your depreciation is based on your purchase price. Not the tax value. 


     Hey great thanks!

    0Reply
  • Trent Barga
    OP
    Real Estate Agent · Dayton Ohio · Member since 2019 · 38 posts · 15 votes
    3y
    Quote from @Natalie Kolodij:
    Quote from @Trent Barga:

    Hoping one of you great people can clarify something for me. Looking at bonus depreciation and wondering if it is based on the county assessed value or purchase price?

    We purchased a commercial building for $420k and the county has the improvements at $115k. I my mind doing a bonus depreciation wouldn't make sense if it is only on the $115k value. We have 6 other single family homes and have 2 high income earners so trying to bring our taxes down as much as possible.

    Thanks!

    "Doinga  bonus depreciation" doesn't really make sense- I'm guessing you mean doing a cost segregation...to separate out components that qualify for bonus depreciation. 

    Also- if you are both high income earners.....your passive losses from rental properties will not reduce your taxable income. 

    If you apid $420k your depreciable basis won't be $115k. You need to divide that $115/ the total value of the property per the assessor. Then whatever that % is is what you'll apply to the $420k to get your depreciable basis. 

    You may want to work with a good tax strategist. 

     Thanks Natalie - I work in real estate as an agent and have 6 properties already so I already qualify for that tax break - I'll have to confirm with out accountant. We just switched Accounts/CPAs who specialize with businesses owners/investors (wife and I have mulitple businesses).

    Thanks!

    0Reply
  • Trent Barga
    OP
    Real Estate Agent · Dayton Ohio · Member since 2019 · 38 posts · 15 votes
    3y
    Quote from @Basit Siddiqi:

    Depreciable basis will be based on what you paid for the property.


     Thanks!

    0Reply
  • Trent Barga
    OP
    Real Estate Agent · Dayton Ohio · Member since 2019 · 38 posts · 15 votes
    3y
    Quote from @Greg Scott:

    The value of the land + improvements that you have on your balance sheet should equal your purchase price.   Your depreciation expense will be a function of the value of the improvements and the method you use for calculating depreciation (e.g straight line vs accelerated).

    As long as you have good justification for how you separate land + improvements, you are fine.  You do not have to use the tax assessment. If you live in Honolulu the value of the land would be a much higher percentage than in Ohio (where it appears you are from).  For our properties in Michigan and Indiana, we typically use around 15% of total purchase price allocated to land and the rest to improvements.


     Thanks Scott. Yeah unfortunately Ohio's land value isn't going anywhere up ha.

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