$0 Land Value possible? What depreciation can I use?

Question

Hi, my first BP question here.

Im looking at a property in the property appraiser website of my county and its showing this property as having $0 land value. The property is a 2nd floor apartment and is part of a condo association.

Main question: Am I allowed to depreciate the full 100% cost of the purchase price given that land assessment is $0? Who pays land taxes in that case?

Second question: The condo association has common area structures such as pool, gym, party room. Am I allowed to depreciate a percentage of those? I would be paying for the "Repair" of those structures through HOA reserves.

Thank you for everything.

Jeff B. · Answer

LAND is never depreciated, only the improvements.

JD Martin · Answer

Main question: Yes, that should be correct. Your depreciation is a percentage of structure to land. As an example, I have a property that has a $50k structure value and a $10k land value. My depreciation basis is going to be 83% of my purchase price. In your case, you are going to have say $100k structure and $0k land, which is a 100% basis. As long as you have proper documentation, you are covered.

Second question: Better asked of a tax accountant, but I believe your deductions are covered through your HOA fees. You have no claim of ownership of these structures outside of the dues you pay, so you wouldn't get anything outside of your HOA fees.

Carlos Perez · Answer

Thank you all very much for your responses. They truly help.

Scott Vance · Answer

@Carlos Perez  You would only expense the actual HOA fees.  The Special Assessment fees would be totaled up and depreciated using the appropriate depreciation schedule.

David Dachtera · Answer

@Carlos Perez,

The distinction between "apartment" and "condo" is usually based on the building. If the utilities, waste plumbing, etc. are built to be separated, it can be a condo.

Apartment buildings may also have utilities metered separately, but the drains are common. There is no HOA and the management company serves a similar purpose to an HOA. Their "dues" (fees) are paid by the building owner out of the rents collected. Typically, the management company collects the rents and delivers them to the owner who pays the management company their fee. Situations will differ based on terms negotiated.

A condo is an element within a building where the unit is owned. It may be rented out by the owner if that's allowed, but it's still a condo. HOAs typically collect only dues, not taxes or other payments.

The building owner pays taxes on the land. The owner may or may not be the HOA (typically, not).

Hierarchically, a condo building might look like this:

- Building Owner

-- HOA

--- Condo Owner

---- Renter

I know - it can be a challenging distinction. There are some areas where "apartments" are owned, similar to condos.

Carlos Perez · Answer

Thank you all for your responses.

@Scott Vance, could you elaborate on Special Assessment (SA) depreciation?

Does that mean that regular HOA is written off as expense but SA should/needs to be depreciated over a period of time? eg. An SA of $4800 over 2 yrs, I can write off as expense of $200/mo.

Or does it mean that I can expense the HOA + SA (eg $200 + $200/mo) AND depreciate the new roof improvement? Note this property is a building unit and I'm looking into only one (out of 30).

@David Dachtera, Im not too familiar with terminologies. So when one purchases a property in a building, the correct terminology is I purchase a "condominium" unit? And when a tenant rents such property it is they rent the "apartment"? Or is it also considered renting a "condominium" due to the building meeting certain criteria?

In relations to the tax breakdown, in the county site, the Land Assessment line is written as $0. Everything else is related to the School, Police, Debt, etc.

@Jd Martin, So, does the HOA pay for the taxes on the land?

Thank you.

Scott Vance · Answer

@Carlos Perez  You can depreciate the cost of the condo itself, you can never depreciate land.  The HOA fees would be expensed and taken care of that way.  If you have a "Special" assessment, say to put on a new roof, build a new pool or something like that then those "Special" assessment fees are totaled up and depreciated.

David Dachtera · Answer

@Carlos Perez,

Where I live, we don't buy apartments, we rent them. If we buy it, it's a condominium and the building itself need to me certain criteria.

I'd take both questions to your tax accountant.

Condos have property taxes like any other living unit. What's included in it is determined by factors over which the owner really has no influence. They were established before you came along. Just take the tax bill from the county. The breakouts will likely be on it.

As a unit owner you typically do not own any of the common areas - the HOA does. The HOA manages those facilities - it's not something an individual unit owner needs to be concerned about.

... based on my experiences as an owner in town home, etc. associations. Your mileage may vary in your area.

$0 Land Value possible? What depreciation can I use?

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