Topic 02 · 5 min read
Splitting Land From Building
Only one half of what you bought can be depreciated.
Land does not wear out, so the law does not let you depreciate it. Every purchase therefore has to be divided between the land and the structure sitting on it. The bigger the building share, the bigger your yearly deduction — which is why the split has to be defensible rather than convenient.
What to know
- The assessor's ratio
- The most common method uses the county's own land and improvement values to set the percentage, then applies that ratio to what you actually paid.
- An appraisal can do better
- A purchase appraisal that separately values land and structure is stronger support than a tax bill, especially on unusual property.
- Location changes everything
- Land might be 15 percent of a rural purchase and 60 percent of a city lot. There is no universal figure.
- Set it once, keep it consistent
- The split is made in the first year and carried forward. Changing it later without cause invites questions.
The tax benefit
A well-supported allocation shifts as much of the purchase as the facts allow into the depreciable building, raising the deduction for decades.
Worked example
Applying the ratio
The county values a property at $60,000 land and $240,000 improvements — 80 percent building. On a $406,000 basis, $324,800 is depreciable and $81,200 sits in land.
Watch out for
- Assigning nearly everything to the building without support is a well-known audit trigger.
- Land improvements like paving and fencing are separate from raw land and do have a life.
- Vacant land produces no depreciation at all.
Terms from this topic
Land allocationImprovementsAssessed valueDepreciable basis
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