How to Allocate Rental Purchase Prices Between Improvements and Land [Tax Smart Daily 033]

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When you purchase a rental property, you can depreciate the building and the improvements, but not the land. You have to allocate some amount of the purchase price to the land value because the land is not a depreciable asset. Here is how you determine the allocation.
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Опубликовано:

10 сен 2024

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Комментарии : 9

@orrd Год назад

Great video. About Texas, you *can* see the county appraised values in Texas. What you were thinking of is that in Texas you can't see the purchase price of the property as you can in most other states. But the county appraisal info and property tax info is public.

@tslechta 4 месяца назад

In California I have a pretty thorough appraisal from the VA from my VA loan on my primary. We have an ADU on the property that we rent out. The VA appraisal has a 55/45 split land to improvements. The county tax assessment uses a 87/13 split for land to improvements. The tax assessment split is kind of ridiculous and values the improvements at less than the actual build cost. Can I choose to use the appraisal splits instead of the tax assessment split?

@philipjosephmeza Год назад

If a property is distressed, requires 60k to get it rentable, what would the property value be depreciated? Cost 60k+improvements 60k - 15k land = 105k depreciation. Is this correct? Would this be the best method?

@orrd Год назад

Yes. The tax basis is the building cost + improvements made before it is put in service. Actually you can also add certain closing costs as well, which this video didn't get into. And if there are mortgage points, those are amortized over the life of the loan.

@BrianPatterson1 3 года назад

What about a condo where you don’t buy the land, just your unit? And the assessor shows $0 for the land portion. Would 100% improvement allocation be acceptable?

@TheRealEstateCPA 3 года назад

You may be able to argue that. Check with your HOA first... they may have agreements on file that allocate some portion of the land to you.

@asusreviews 2 года назад

@@TheRealEstateCPA What about if the insurance company's rebuild cost of the home exceeds the total purchase price of the real estate (structure/land)? Can the land cost ever be justified at zero? Secondly, does the depreciation cost ever change or is it based on the year 1 price that you enter? For example if 10 years down the line the property doubled in cost, can you depreciate it at a higher rate?