Rental Depreciation - Posted by Jason

Posted by Jason on November 24, 2007 at 10:26:34:

The problem in my area is that land sells for over 125k.

Rental Depreciation - Posted by Jason

Posted by Jason on November 22, 2007 at 23:31:14:

When depreciating a rental property I have heard that you cannot depreciate the value of the land. So, if you buy a property at let’s say 150,000 and the land is assessed at 100,000 and the building is only assessed at 50,000 that doesn’t leave too much to write off. Is there any other legal way to assess the building higher other than improvements? In my area of NJ there are a lot of properties like this. I would like to acquire more properties but would like to get a better write off. Any suggestions would be greatly appreciated.

Also, which property with the same cash flow would you think would be better for a rental. Both 3 bed 1 bath SFR

A. Purchase = 175,000 Needs Nothing
Fair Market = 210,000
Land Assessment = 100,000
Building Assessment = 65,000

B. Purchase = 135,000 Needs 35,000 in repairs
Fair Market after repairs = 215,000
Land Assessment = 30,000
Building Assessment = 60,000

Re: Rental Depreciation - Posted by Jason

Posted by Jason on November 24, 2007 at 10:24:56:

Thanky you all for your responses.

Re: Rental Depreciation - Posted by Tim

Posted by Tim on November 23, 2007 at 10:19:59:


I think it depends on where your property is located as to how much you allocate to land. I own some houses that are in a semi-rough neighborhood (not a warzone). On a 30k purchase I allocate $500-$1000 for land cost. My reasoning is that every year the county has a surplus land auction and they are lucky to get $400 for a lot in these areas. Most go unsold. So, I believe that is all the land is worth and the auctions can back me up.


Re: Rental Depreciation - Posted by Jimmy

Posted by Jimmy on November 23, 2007 at 06:24:21:

how the county assesses your property is not determinative of the issue. assessed values often have little to do with the real value.

it is pretty rare for a real estate deal to separately state what part of the totla price is being allocated to the vavious components. so you have an opportunity to make that allocation.

I do it in a way that favors my interests, but with an envelope od reasonability.

for me, I want allocate a small % to the land, as much as possible to the fixtures. appliances, flooring and stuff that gets a 5 or 7 year depreciation period, and the rest to the bldg (27.5 years).

Re: Rental Depreciation - Posted by Frank Chin

Posted by Frank Chin on November 23, 2007 at 04:13:04:


In certain areas, like NYC, where RE prices are high, it’s due to the high land value.

Yet, I asked what you asked 25 years ago when I started RE, just about all CPA’s told me then to allocate 25% to land, 75% to the building, pretty standard they say, and they never heard of the IRS coming in challenging this.

It’s been 25 years now, some properties are fully depreciated, and I heard not a beep.

Frank Chin