The simplest way to calculate the land value and the cost basis for your rental property is to use your property tax bill. Each bill provides a valuation of the land and the buildings on it. This is an approximate value in which the government acts as an appraiser.
How do I find the value of my house and land?
You can do this by visiting the local property assessor’s website or office. The tax card will give you a value for the land and a value for the building. You will take those percentages and apply it to your purchase price. For example, you purchase a property for $100,000.
What costs are included in the cost of land?
*The cost of land includes its purchase price (cash plus any note payable), brokerage commission, survey fees, legal fees, back property taxes, and expenditures for grading and clearing the land and for removing unwanted buildings.
Is land or a house more valuable?
While land is the ultimate store of value in real estate, a 3,000-square-foot house on a 0.43 acre lot may not be worth more than the same house on a 0.39 acre lot, even though there is a 10 percent difference in the amount of land.
How do you allocate land to a building?
Since land cannot be depreciated, you need to allocate the original purchase price between land and building. You can use the property tax assessor’s value to compute a ratio of the value of the land to the building.”
Can a taxpayer allocate land according to its assessed value?
The IRS has countered and said, “A taxpayer cannot allocate his cost basis in land and buildings solely according to their assessed values for property tax purposes when better evidence, such as an engineering report, exists to establish fair market value.”
How much of the purchase price should be allocated to land?
It is the end of the year, and a rookie staff accountant from your CPA firm asks you, “How much of the purchase price should be allocated to land?” The quick response is 20%. This enables the entity to depreciate 80% of the purchase price. Now, you may wonder where the classic 80/20 came from.
Is there a formula for allocation of land?
There is no single formula that can be used every time in every situation. Of primary importance is your ability to defend your allocation in the event of an audit. Proper documentation done at the time of purchase will support your position that the ratio has not been determined haphazardly.
