Depreciation Question for Commercial Real Estate

[Gaurav Malhotra]

Hi, 

I am purchasing a commercial real estate (offices). here is the data:

1. Cost: 1.1Mn

2. Originally went into service in 1965 (55 years ago)

3. Assessed land value if 70% and Building is 30% per the county

4. Useful life remaining is max 10 years

Q: when i depreciate the building, will it be for only 10 years (remaining life)...so lets say salvage value is 50K. so I will depreciate 30% of cost = 330K minus 50 K salvage = 280 over a useful life period of 10 years = 28K per year?

or next Q:

will i have to depreciate building value of 330K over 39 years 

or - next Q

Can i use the replacement value from the insurance (400K) and depreciate over 10 years (useful life) or 39 years?

Thanks

[Jaysen Medhurst]

Your depreciation is based on what you paid for the asset, @Gaurav Malhotra. Useful life and salvage have nothing to do with it, you depreciate over 39 years (unless you do a cost segregation study, in which case you can pull a bunch of it forward). 

The 70/30 split is interesting as it's usually the exact opposite (improvements are more than land), but perhaps this is in a very desirable location or a very large lot, relative to the building size. I think this is the part that's most worth a conversation with your CPA (I'm not one). My understanding is that you don't have to use the govt. assessment, but you'll need a strong argument for a different ratio