Confused about Rental property depreciation - How to determine Original basis for land only?
I purchased a rental property last year for $250k, but I just got my county tax bill and I'm confused about how to figure out the depreciation. The county's Total estimated market value based on the tax bill is showing $215k. The bill breaks down the values like this: Total Assessed Value $21,000 Land Assessed Value $4,000 Building Assessed Value $16,000 I'm really confused because these assessed values don't seem to add up to the $215k market value. Where does the other $173k come from? When I'm entering this in my tax software, it asks for the Total original basis (which I assume is my $250k purchase price), but then it asks for Original basis for the land only. Should I just put $4000 for the land value? That seems way too low for the land portion. I'm completely lost on how to calculate this correctly.
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Zainab Ahmed
The assessed values are often much lower than market values - they're basically just a percentage used for property tax calculations, not the actual worth of your property. For depreciation purposes, you need to determine what portion of your total purchase price ($250k) should be allocated to the land versus the building. Since land can't be depreciated, this distinction is important. The ratio from your tax assessment can help with this. Based on your numbers, the land represents about 19% of the building value ($4,000/$21,000). So for your tax software, you'd enter $250k as the total basis, and for the land portion, you'd use 19% of your purchase price, which would be about $47,500 ($250k × 0.19). The remaining $202,500 would be your depreciable basis for the building.
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Connor Gallagher
•Wait, I'm still confused. How did you get 19%? If Land Assessed is $4,000 and Total Assessed is $21,000, wouldn't that be $4,000/$21,000 = 19%? And if I apply that to my purchase price of $250k, I get $47,500 for the land. Am I missing something?
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Zainab Ahmed
•You're absolutely right, and I apologize for the error. The land represents about 19% of the total assessed value ($4,000/$21,000). So yes, you would calculate the land portion as 19% of your purchase price, giving you $47,500 for the land value. The remaining $202,500 would be your depreciable basis for the building. Thanks for catching that - I'll correct my original comment.
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AstroAlpha
I had a similar issue last year and discovered taxr.ai (https://taxr.ai) which saved me so much time figuring out my rental property depreciation. I was confused about the land vs. building allocation and how to properly calculate my basis. Their system analyzed my property tax documents and purchase documents and gave me the exact calculations I needed for my tax software. Saved me hours of research and probably a headache with the IRS.
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Yara Khoury
•Did it help with figuring out the land value specifically? That's my main issue right now. And does it work with most tax software or only specific ones?
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Keisha Taylor
•I'm skeptical about these online tools. How does it actually determine the land value? The county assessments can be all over the place compared to actual market values.
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AstroAlpha
•It absolutely helped with determining the land value specifically. The tool uses the proportional method (similar to what the expert described above) but it also factors in local property data to make sure the land allocation is reasonable for your area. It works with any tax software since it just provides you with the correct numbers to enter. The tool analyzes your documents and gives you a detailed breakdown that you can use no matter what software you're using to file.
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Yara Khoury
Just wanted to follow up - I tried taxr.ai after seeing it mentioned here and it was incredibly helpful! I uploaded my closing documents and property tax statement, and it calculated exactly what portion of my purchase price should be allocated to land vs. building. It even showed me the depreciation schedule for the next 27.5 years. The report made it super clear what numbers to enter in my tax software. Definitely recommend for anyone dealing with rental property depreciation for the first time.
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Paolo Longo
If you're still having troubles after figuring out the numbers, I'd recommend calling the IRS directly to verify you're doing it right. I know it sounds awful, but I used Claimyr (https://claimyr.com) to get through to an actual IRS agent last month when I had a similar rental property depreciation question. Check out how it works here: https://youtu.be/_kiP6q8DX5c They got me connected to a real person at the IRS in about 20 minutes instead of waiting on hold for hours. The agent walked me through exactly how to handle my rental property depreciation and confirmed my land value allocation was correct.
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Amina Bah
•How does this actually work? I've tried calling the IRS about rental property questions before and gave up after being on hold forever.
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Keisha Taylor
•Sorry, but this sounds too good to be true. I've waited 3+ hours on hold with the IRS before. There's no way they can get you through that quickly unless they're doing something sketchy.
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Paolo Longo
•The service works by using technology to navigate the IRS phone system and wait on hold for you. When they reach an agent, they call you and connect you directly. It's completely legitimate - they're just using tech to handle the hold time so you don't have to. I was skeptical too initially. But it's a simple process - you enter your phone number, they call you when they get an IRS agent on the line, and then you're connected. Completely changed how I deal with IRS questions.
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Keisha Taylor
I need to publicly eat my words about Claimyr. After being super skeptical, I decided to try it for a complicated question about my rental property depreciation that I couldn't resolve online. They actually did get me through to an IRS agent in about 15 minutes. The agent confirmed that using the assessment ratio method for separating land value is acceptable, and cleared up my confusion. Would have waited hours otherwise or just guessed on my return. Still kind of in shock that it worked so well.
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Oliver Becker
Another way to determine land value: check your property's closing documents and settlement statement. Sometimes they'll have a specific land value listed separately. That's usually the most accurate source since it reflects what you actually paid.
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Miguel Diaz
•I checked my settlement statement but it just shows the total purchase price without breaking down land vs. building. Is there another document from the closing that might have this breakdown?
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Oliver Becker
•Sometimes your home appraisal from when you purchased the property will include a land value. Check that document if you have it. If you don't have that, another approach is to contact a local real estate agent who might be able to give you comparable land values in your area. Some tax professionals also have specific tools to help determine appropriate land values for your location.
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CosmicCowboy
Just to add to what others have said - the total assessed value vs market value discrepancy is completely normal. In most counties, the assessed value is a percentage of market value for tax calculation purposes. For example, in my county, the assessment ratio is 10%, meaning a property worth $200k would have an assessed value of $20k.
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Natasha Orlova
•This is correct. Each county has their own assessment ratio. You can usually find this info on your county's property tax assessor website. Some counties assess at 100% but most use lower percentages.
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Javier Cruz
Remember that you can also get a property appraisal specifically for determining the land value for tax purposes. It costs money but might be worth it if you have a significant property value. I did this for my rental and the appraiser specifically broke out the land value from the improvements.
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Oliver Wagner
Thanks everyone for all the helpful advice! I think I was overcomplicating this. Based on what you've all shared, I'm going to use the proportional method with my tax assessment - so 19% of my $250k purchase price for land ($47,500) and the remaining $202,500 for the building depreciation. I really appreciate the clarity on why the assessed values are so much lower than what I paid - I had no idea that counties use different assessment ratios for tax purposes. That was throwing me off completely. For anyone else in a similar situation, it sounds like there are multiple approaches (assessment ratio, closing documents, appraisal, or even calling the IRS), but the proportional method using tax assessments seems to be the most straightforward for most people.
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