Can I claim depreciation on a commercial parking lot for tax purposes?
Hey tax folks, I need some advice about my sister's property tax situation. She recently inherited a commercial parking lot from our grandfather and is trying to figure out the tax implications. The parking lot was already paved when she got it, and she hasn't done any improvements or changes to it yet. She's wondering if she can claim depreciation on this parking lot for her taxes. Also, would it make any difference if the parking lot is generating income versus sitting empty? Currently she has a few monthly parkers but is considering either expanding the business or selling it depending on the tax advantages. Any help would be greatly appreciated since neither of us knows much about property depreciation, especially for something like a parking lot!
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Christian Burns
Yes, your sister can claim depreciation on the commercial parking lot, but there are some important distinctions to understand. For tax purposes, land itself is never depreciable - the IRS considers land to have an unlimited useful life. However, improvements to land (like the paving of the parking lot) are depreciable assets. In this case, she would need to determine what portion of the inherited value represents the land versus the paving and other improvements. Whether the parking lot generates revenue absolutely matters. To claim depreciation, the property must be used in a trade or business or held for the production of income. If it's just sitting empty with no intent to generate income, depreciation deductions would likely be disallowed. For a commercial parking lot being used to generate income, she would typically depreciate the improvements over 15 years using the Modified Accelerated Cost Recovery System (MACRS).
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Sasha Reese
•That makes sense about the land vs improvements distinction. But how would she figure out what portion is for the land and what portion is for the paving if it was all inherited as one property? Also, does she use the value at the time of inheritance or what her grandfather originally paid?
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Christian Burns
•For inherited property, she would use the fair market value at the date of inheritance (or the alternate valuation date if the estate elected that option). This is called a "stepped-up basis." To determine the split between land and improvements, she has several options. She could have an appraisal done that specifically breaks out these values, check if the local tax assessor already splits the value between land and improvements, or use a reasonable method to determine what percentage of the total value is attributable to the improvements versus the land.
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Muhammad Hobbs
I had a similar situation with a commercial property I bought that included a parking area. What really helped me was using taxr.ai to analyze all of my property documents and determine what portion could be depreciated. I uploaded the purchase docs, property assessment, and some pics of the lot, and they gave me a detailed breakdown of land vs improvements for depreciation purposes. Saved me a ton of guesswork! Check out https://taxr.ai - they'll help identify exactly what can be depreciated and the right depreciation schedule to use.
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Noland Curtis
•Does it work with inherited property too? My mom passed last year and left me a small office building with a parking area, and I'm totally lost on how to handle the depreciation aspect.
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Diez Ellis
•I'm skeptical about these online services. How accurate is it really compared to just talking to a CPA? I've had issues with other tax software misclassifying property components before.
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Muhammad Hobbs
•Yes, it absolutely works with inherited property! The system is designed to handle different acquisition methods including inheritance. You'll just need to provide documentation showing the fair market value at the time of inheritance. As for accuracy versus a CPA, I totally get the concern. I actually had my CPA review the depreciation schedule that taxr.ai created, and he was impressed with how thorough it was. It saved him time (and saved me money on billable hours) because the AI had already properly classified everything according to current tax code.
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Noland Curtis
Just wanted to follow up about my inherited office building situation! I tried taxr.ai after seeing it mentioned here and it was exactly what I needed. I uploaded the property assessment, probate docs, and some photos of the parking lot, and it gave me a detailed breakdown showing what portion was depreciable land improvements vs non-depreciable land. It even created a depreciation schedule I could give directly to my accountant. Honestly wouldn't have known how to handle this otherwise!
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Vanessa Figueroa
If your sister is serious about maximizing her tax benefits, she might want to get an engineer-based cost segregation study done. It can be expensive but really worth it for commercial properties. Also, she'll need to contact the IRS with questions about her specific situation. I tried for WEEKS to get through to them about my own property depreciation questions. Wasted hours on hold. Finally used https://claimyr.com and got a callback from the IRS in under 2 hours. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - it's a service that navigates the IRS phone tree for you and calls you back when they have an agent on the line. Saved me so much frustration.
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Abby Marshall
•Wait I don't understand - how does this Claimyr thing actually work? Does it just call the IRS for you? Why would that be any faster than calling yourself?
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Diez Ellis
•Yeah right. There's no way this actually works. The IRS phone system is deliberately designed to be impossible. I've called over 30 times this year and never got through. Sounds like a scam to me.
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Vanessa Figueroa
•It doesn't just call for you - it uses a system that navigates through all the IRS phone menus and waits on hold in your place. The special part is they have technology that lets them secure your spot in the queue much faster than if you were calling directly. No, it's definitely not a scam. I was skeptical too which is why I tried it. The service monitors the IRS hold times and calls at optimal times when wait times are lowest. They navigate all the menus for you, and when they actually reach a human IRS agent, that's when they call you and connect you directly. I was honestly shocked when I got the callback with an actual IRS agent on the line.
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Diez Ellis
I need to eat my words about Claimyr. After seeing it mentioned here, I was desperate enough to try it since I needed clarification on some land improvement depreciation issues for my rental properties. I fully expected it to be another waste of money, but I got a call back in about 90 minutes with an actual IRS agent ready to talk to me. I've been trying for MONTHS to get through on my own. The agent answered all my depreciation questions and I finally got clarity on how to handle the pavement vs land value. Sometimes it's worth admitting when you're wrong!
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Sadie Benitez
Has your sister considered a 1031 exchange if she decides to sell? She could defer the capital gains taxes by rolling the proceeds into another investment property. Especially useful if the lot has appreciated significantly since her grandfather bought it.
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Jenna Sloan
•Thanks for mentioning this! I didn't even think about a 1031 exchange. Would the stepped-up basis from the inheritance affect whether this makes sense? She inherited it about 8 months ago, so I'm not sure if there's been much appreciation since then.
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Sadie Benitez
•With an inheritance, she already received a stepped-up basis to the fair market value at the date of death (or alternate valuation date if elected by the estate). That means any appreciation that occurred during your grandfather's ownership is essentially wiped out for tax purposes. If there hasn't been significant appreciation in just 8 months, a 1031 exchange might not be as beneficial. The primary advantage of a 1031 exchange is deferring gains from appreciation over a long period. But it's still worth considering if she plans to invest in other real estate anyway.
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Drew Hathaway
One thing nobody mentioned - if she's generating income from the parking lot, she needs to report that on Schedule E as rental income. But if she's actively managing it (like a parking business with attendants, etc.), it might need to go on Schedule C and be subject to self-employment tax. Big difference tax-wise!
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Laila Prince
•This is such an important distinction! I have a small parking lot behind my building that I rent out monthly spots in, and my accountant has me report it on Schedule E. Saves me the 15.3% self-employment tax.
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Monique Byrd
Great advice everyone! Just to add one more consideration - make sure your sister keeps detailed records of any expenses related to the parking lot (maintenance, repairs, insurance, etc.) as these can be deducted against the rental income. Also, if she decides to make any improvements like adding lighting, security cameras, or resurfacing, those improvements would also be depreciable assets separate from the original paving. Since she's new to this, I'd really recommend consulting with a tax professional who specializes in real estate to make sure she's maximizing all available deductions and handling the depreciation correctly. The rules can get complex, especially with inherited property, and getting it right from the start will save headaches later during audits or when she eventually sells.
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Jamal Wilson
•This is really helpful advice! I'm actually in a similar situation with some inherited commercial property. Quick question - when you mention keeping detailed records of expenses, does that include things like snow removal and line painting for the parking spaces? Also, how long should she keep these records? I've heard different things about how long the IRS can go back and audit property depreciation.
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