Cost of land for rental depreciation

[NotSoFair]

I am planning to do taxes myself using TurboTax, but I am not sure what percentage of total value of home goes towards land. I looked up the value of land on the county records and it is unbelievably high. The property is a condo, with a very small lot size of about 870 sqft. However, according to the county records over 60% is cost of land. Is there a different way of calculating it?

Thanks

[mwcpa]

IRS suggests that a reasonable method is to allocate based on assessed values...

IRS publication 551 www.irs.gov/uac/Publication-551,-Basis-of-Assets

"If you buy buildings and the land on which they stand for a lump sum, allocate the basis of the property among the land and the buildings so you can figure the depreciation allowable on the buildings.

Figure the basis of each asset by multiplying the lump sum by a fraction. The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. If you are not certain of the FMV of the land and buildings, you can allocate the basis based on their assessed values for real estate tax purposes. "

So, let's say....

Purchase price 100,000.

Assessed value is 50,000, of which 10,000 is land.

So, 10/50 = 20% is land...

Therefore, 100,000 * 20% = 20,000 for land.

That's a reasonable method per IRS.

But, if you think the property tax assessor has valued your buildings disproportionately low compared to the land, you can make your own calculations. But, those calculations must have a reasonable basis, you cannot just arbitrarily allocate it.  One way to establish a reasonable basis is to hire an appraiser who will use comparable properties in the area near yours.

[NotSoFair]

Thank you mwcpa for the explanation.

I had eyeballed the percentage to 60%, now I did the real calculation and it is 78:22. Lot is about 870 sqft (about 0.02 acres) whereas the house is 1500 sqft. I live within a mile of this house with a lot size of 0.12 acre and the proportion is 45:55. So, I know the land can't be that pricey.

Anyway, I am going to check what effect it would have on my taxes if I actually used 78%*purchase price.

Thanks

[The Captain]

FWIW the land to building ratio in my neck of the woods is 20:80 so you are kinda in line with where I'm at.  With that being said that would price the land on my rentals at about 2X what vacant lots in the area are selling for.

I'm conservative by nature, too cheap to pay for an appraiser, and know I'll get everything settled up when I eventuall sell the rental (capital gains will be less because I depreciated less).  I'm just going to use the assessed value to be lazy and on the safe side.

[NotSoFair]

That makes sense. I am going to do the same. It increases my tax by about a couple of hundred dollars, no big deal. But, I will have peace of mind.

[mwcpa]

"I will have peace of mind."

Very good words to live by when addressing tax matters where you are not 100% sure and desire DIY....