Land & Improvement Ratio for depreciation

3 Replies

Hi everyone,
I just received the supplemental assessment from Santa Clara county, CA, of my purchase last year. To my surprise, the reappraised value of building decreases by 50% and land value jumps by almost 50% compared to previous value. This huge rebalance makes the final land to building improvements ratio (83% vs 17%). As depreciation is only based on improvement, I'm very limited here.

However, from the last year's appraisal report required by lender, the indicated value from a cost approach shows a land to improvement ratio (61% to 39%). Will IRS allow me to deduct base on 39% * purchase price?  From the article below, it seems no strict standard for the ratio and appraisal can be used as justification. However, this article seems years ago, I'd like to check on the forum to learn if this is out of date and hear more opinions. Thanks!

I've also had the same issue from county reassessment with a property purchase in 2020. I can't seem to find the ratio from the appraisal prepared for the lender, so don't have another ratio to use.

Does anyone have any recommendations for on how to get a more realistic ratio for backup in case of audit? Should I ask the appraiser who prepared the report to put a ratio on it? From an income approach, with rent reductions etc and now 1 vacancy in this multi-family, I would also think that the value has gone done?

Any ideas/appraisers greatly welcomed...

Hi Nuo, Thanks for prompt response. I looked and under that section this was the comment:

"Due to the difficulty is accurately determining accrued depreciation of a complex of the subject's age and due to the limited availability of recent vacant land sales in the immediate submarket, the Cost Approach was deemed to be a very weak indicator for value for the subject, thus is was excluded from this analysis. Per lender request, an "Insurable Value" estimate has been provided herein. The above cost estimates were taken from the Marshall Swiftestimator Cost Service -- Avg+ Quality, Class D."

The insurable value is very low, so that really doesn't help. I'm surprised as this property is in San Francisco county...maybe because the appraiser was in Fairfield, CA and isn't familiar with SF?

Any feedback greatly appreciated.