How to allocate between building and land for depreciation

I am a first time landlord doing my taxes. I understand I can take depreciation deductions against the cost of the building but not the land. Can anyone advise on how to determine the allocation between the building and the land? Of course, the higher the allocation to the building the better for tax purposes, but how does one go about picking an allocation that is supportable and won’t raise eyebrows with the IRS? There’s obviously not much market data to look to for guidance (since there are not many pure tracts of land being sold to use as comps). From what I’ve read so far, it sounds like people just pick an allocation (such as 90/10 or 80/20) out of thin air. Thanks in advance for any advice.

brooklynny

in Taxes 11 years and 4 months ago

5

Please log in, in order to post replies!

5 replies

Newest Oldest

johnife | 11 years and 3 months ago

string(1) "1"
object(WP_User)#4892 (8) {
  ["data"]=>
  object(stdClass)#4881 (12) {
    ["ID"]=>
    string(3) "659"
    ["user_login"]=>
    string(7) "johnife"
    ["user_pass"]=>
    string(34) "$P$Bfa8Emer1qwrTVp5ycryn9Gyz2AIL4."
    ["user_nicename"]=>
    string(7) "johnife"
    ["user_email"]=>
    string(17) "johnife@panix.com"
    ["user_url"]=>
    string(49) "http://bstoner.wpengine.com/forums/users/johnife/"
    ["user_registered"]=>
    string(19) "2017-08-10 14:11:42"
    ["user_activation_key"]=>
    string(0) ""
    ["user_status"]=>
    string(1) "0"
    ["display_name"]=>
    string(7) "johnife"
    ["spam"]=>
    string(1) "0"
    ["deleted"]=>
    string(1) "0"
  }
  ["ID"]=>
  int(659)
  ["caps"]=>
  array(2) {
    ["subscriber"]=>
    bool(true)
    ["bbp_participant"]=>
    bool(true)
  }
  ["cap_key"]=>
  string(15) "wp_capabilities"
  ["roles"]=>
  array(2) {
    [0]=>
    string(10) "subscriber"
    [1]=>
    string(15) "bbp_participant"
  }
  ["allcaps"]=>
  array(4) {
    ["read"]=>
    bool(true)
    ["level_0"]=>
    bool(true)
    ["subscriber"]=>
    bool(true)
    ["bbp_participant"]=>
    bool(true)
  }
  ["filter"]=>
  NULL
  ["site_id":"WP_User":private]=>
  int(1)
}

It depends where the house is located but, using Park Slope or Boerum Hill as a guide, land is currently worth in the order of $200 per buildable square foot. So, if the house is is an area with an allowable FAR (floor area ratio) by zoning of 2 and the lot is 20ft x 100 ft, the land is worth $400,000\. Note that this is completely independent of the size of the house as currently built on the lot.

brooklynny | 11 years and 4 months ago

string(1) "1"
object(WP_User)#4891 (8) {
  ["data"]=>
  object(stdClass)#4890 (12) {
    ["ID"]=>
    string(4) "5806"
    ["user_login"]=>
    string(10) "brooklynny"
    ["user_pass"]=>
    string(34) "$P$BI11PZwL3ocoAP7.gjZ//lDlmUVUrU1"
    ["user_nicename"]=>
    string(10) "brooklynny"
    ["user_email"]=>
    string(22) "ericjstoller@gmail.com"
    ["user_url"]=>
    string(26) "/forums/users/brooklynguy/"
    ["user_registered"]=>
    string(19) "2017-08-10 14:13:42"
    ["user_activation_key"]=>
    string(0) ""
    ["user_status"]=>
    string(1) "0"
    ["display_name"]=>
    string(10) "brooklynny"
    ["spam"]=>
    string(1) "0"
    ["deleted"]=>
    string(1) "0"
  }
  ["ID"]=>
  int(5806)
  ["caps"]=>
  array(2) {
    ["subscriber"]=>
    bool(true)
    ["bbp_participant"]=>
    bool(true)
  }
  ["cap_key"]=>
  string(15) "wp_capabilities"
  ["roles"]=>
  array(2) {
    [0]=>
    string(10) "subscriber"
    [1]=>
    string(15) "bbp_participant"
  }
  ["allcaps"]=>
  array(4) {
    ["read"]=>
    bool(true)
    ["level_0"]=>
    bool(true)
    ["subscriber"]=>
    bool(true)
    ["bbp_participant"]=>
    bool(true)
  }
  ["filter"]=>
  NULL
  ["site_id":"WP_User":private]=>
  int(1)
}

I do my own taxes, so I am my tax guy.

cmu | 11 years and 4 months ago

string(1) "1"
object(WP_User)#4887 (8) {
  ["data"]=>
  object(stdClass)#4893 (12) {
    ["ID"]=>
    string(4) "1452"
    ["user_login"]=>
    string(3) "cmu"
    ["user_pass"]=>
    string(34) "$P$BAgbyB/HMjW1bkU2j50UcmzgpaBAo2."
    ["user_nicename"]=>
    string(3) "cmu"
    ["user_email"]=>
    string(23) "chandrumurthi@yahoo.com"
    ["user_url"]=>
    string(33) "http:///forums/users/splitsville/"
    ["user_registered"]=>
    string(19) "2017-08-10 13:48:11"
    ["user_activation_key"]=>
    string(0) ""
    ["user_status"]=>
    string(1) "0"
    ["display_name"]=>
    string(3) "cmu"
    ["spam"]=>
    string(1) "0"
    ["deleted"]=>
    string(1) "0"
  }
  ["ID"]=>
  int(1452)
  ["caps"]=>
  array(2) {
    ["subscriber"]=>
    bool(true)
    ["bbp_participant"]=>
    bool(true)
  }
  ["cap_key"]=>
  string(15) "wp_capabilities"
  ["roles"]=>
  array(2) {
    [0]=>
    string(10) "subscriber"
    [1]=>
    string(15) "bbp_participant"
  }
  ["allcaps"]=>
  array(4) {
    ["read"]=>
    bool(true)
    ["level_0"]=>
    bool(true)
    ["subscriber"]=>
    bool(true)
    ["bbp_participant"]=>
    bool(true)
  }
  ["filter"]=>
  NULL
  ["site_id":"WP_User":private]=>
  int(1)
}

Since land is undepreciable, a low % gives you more of a tax advantage. 90-10 is pushing it, I feel, and may set you up for an audit. I think mine is 60-40\. Remember that land in NYC is proportionately more valuable than in the ‘burbs’. Also, doesn’t a tax guy suggest this value? Mine did.

brooklynny | 11 years and 4 months ago

string(1) "1"
object(WP_User)#4890 (8) {
  ["data"]=>
  object(stdClass)#4892 (12) {
    ["ID"]=>
    string(4) "5806"
    ["user_login"]=>
    string(10) "brooklynny"
    ["user_pass"]=>
    string(34) "$P$BI11PZwL3ocoAP7.gjZ//lDlmUVUrU1"
    ["user_nicename"]=>
    string(10) "brooklynny"
    ["user_email"]=>
    string(22) "ericjstoller@gmail.com"
    ["user_url"]=>
    string(26) "/forums/users/brooklynguy/"
    ["user_registered"]=>
    string(19) "2017-08-10 14:13:42"
    ["user_activation_key"]=>
    string(0) ""
    ["user_status"]=>
    string(1) "0"
    ["display_name"]=>
    string(10) "brooklynny"
    ["spam"]=>
    string(1) "0"
    ["deleted"]=>
    string(1) "0"
  }
  ["ID"]=>
  int(5806)
  ["caps"]=>
  array(2) {
    ["subscriber"]=>
    bool(true)
    ["bbp_participant"]=>
    bool(true)
  }
  ["cap_key"]=>
  string(15) "wp_capabilities"
  ["roles"]=>
  array(2) {
    [0]=>
    string(10) "subscriber"
    [1]=>
    string(15) "bbp_participant"
  }
  ["allcaps"]=>
  array(4) {
    ["read"]=>
    bool(true)
    ["level_0"]=>
    bool(true)
    ["subscriber"]=>
    bool(true)
    ["bbp_participant"]=>
    bool(true)
  }
  ["filter"]=>
  NULL
  ["site_id":"WP_User":private]=>
  int(1)
}

Thanks, but how do you ascertain the real estate tax real estate tax assessor’s ratio? My property tax statements and value assessments do not seem to include a breakdown between land and building. After my initial post, I checked the appraisal report that was obtained in connection with my mortgage. It shows the land value as being 57.5% of the total, but I’m not convinced that that’s accurate.

resident2 | 11 years and 4 months ago

string(1) "1"
object(WP_User)#4891 (8) {
  ["data"]=>
  object(stdClass)#4894 (12) {
    ["ID"]=>
    string(6) "181002"
    ["user_login"]=>
    string(9) "resident2"
    ["user_pass"]=>
    string(34) "$P$BYKCrEpDU34.3RJghRPk8/Xp1XpCve/"
    ["user_nicename"]=>
    string(9) "resident2"
    ["user_email"]=>
    string(21) "Jamanda1255@Yahoo.com"
    ["user_url"]=>
    string(0) ""
    ["user_registered"]=>
    string(19) "2017-08-10 14:07:33"
    ["user_activation_key"]=>
    string(0) ""
    ["user_status"]=>
    string(1) "0"
    ["display_name"]=>
    string(9) "resident2"
    ["spam"]=>
    string(1) "0"
    ["deleted"]=>
    string(1) "0"
  }
  ["ID"]=>
  int(181002)
  ["caps"]=>
  array(1) {
    ["bbp_participant"]=>
    bool(true)
  }
  ["cap_key"]=>
  string(15) "wp_capabilities"
  ["roles"]=>
  array(1) {
    [0]=>
    string(15) "bbp_participant"
  }
  ["allcaps"]=>
  array(1) {
    ["bbp_participant"]=>
    bool(true)
  }
  ["filter"]=>
  NULL
  ["site_id":"WP_User":private]=>
  int(1)
}

I have always used 90% building 10% land. But recently land prices have gone up in some areas. Some conservative accountants have told me to use the NYC Real Estate tax assessors ratio for your buildings, well that at least gives you someone to blame if the IRS questions it, but you only have to look at a few buildings and you will quickly deduce that the City seems to have no rhyme or reason either for the land assessment v the building or whole assessment. But the bottom line is pick a number and stay the same for the duration, if you change from year to year it will raise a red flag. And if you have a 4 sty 3 family but you occupy 2 floors do not let an accountant claim 2/3 deprecation, when you clearly live in 50%.