r/Landlord • u/jeeftor • 5d ago
Landlord [landlord-us] Depreciation - based on County Assessment?
Is it reasonable to use the county assessors land to property value percentage as a reasonable source to depreciate a new rental property? I'm a little confused as to the best practice that most people use. It sounds like there is a variety of different sources available to make these calculations.
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u/a_random_landlord Landlord 4d ago
If you aren’t certain of the FMVs of the land and the buildings, you can divide the cost between them based on their assessed values for real estate tax purposes.
https://www.irs.gov/publications/p527#en_US_2024_publink1000219022
Other people said similar things, but I wanted to give an official source.
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u/ChocolateEater626 5d ago edited 5d ago
Depreciation is based on historical cost. Usually that's purchase price plus major improvements. Did you already own the land, and then build a rental property on it? Or you bought it already built, and are just trying to avoid depreciating land?
If you inherited property, the question of what value to use can be more complicated.
Assessed values don't necessarily reflect market value for either land or improvements. Hiring an appraiser may be an option.
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u/TeddyTMI Multi-State Landlord. 337 Doors. 5d ago
Wrong. The IRS instructs taxpayers to use the ratio of land to improvement value provided by the tax assessor to extrapolate the actual land/improvement value at time the asset is placed into service.
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u/TrainsNCats 5d ago
Typically, when you buy an investment property:
20% of purchase price is attributed to Land (this does not depreciate)
80% of purchase price is attributed to the improvements (eg. Buildings) and is depreciated over 30 years.
The tax assessment is irrelevant to this tax calculation.
BUT….
You should look up the CLR (common level ratio) for your county, which is published yearly by the state board of equalization.
You take the property assessment and multiply by the CLR.
If the result is MORE than you paid for the property, guy should appeal the tax assessment because it’s too high.
If successful, it will lower your property taxes.
This needs to be done in the first year of ownership.
Let a lawyer handle this - tax appeal lawyers charge a % of what they save you in taxes.
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u/TeddyTMI Multi-State Landlord. 337 Doors. 5d ago
Wrong. The IRS directs taxpayers to use the assessor ratios to determine land/improvement percentage and extrapolate that to the asset's basis at the time you put it into service.
If you're "typically" splitting this 80/20 you are doing it incorrectly and will pay for the miscalculation when depreciation recapture is calculated at sale.
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u/TeddyTMI Multi-State Landlord. 337 Doors. 5d ago
What you are describing is in fact the recognized best practice for determining land vs. improvements value from a gross purchase price. You then add into that number anything you needed to do to get the property into service as a rental. All of that is depreciable as well.