How to handle rental condo depreciation when HOA has a 99-year land lease - 0% Land allocation?

This is actually a great question that comes up more than you might think. When you have a land lease situation like this, you're essentially paying for the right to use the building, not the land itself. Since you don't have an ownership interest in the land, you generally wouldn't allocate any portion of your purchase price to land. The county's assessment likely includes land value because their systems are set up to value all properties with a land component, even when the ownership situation is more complex. Tax assessment values and depreciation allocations for federal tax purposes don't have to match. The key thing to consider is what you actually purchased. In this case, you bought a condo unit within a building on leased land. You're not buying any interest in the land itself - that belongs to whoever your HOA is leasing from. Therefore, allocating 100% to the building is generally appropriate. If you want to be extra cautious, you could include a note with your tax return explaining the land lease situation and why you're depreciating 100% of the purchase price. But honestly, this is a common enough scenario that it shouldn't raise eyebrows.

I went through something similar with a condo I bought in Hawaii. I found this amazing tool at https://taxr.ai that helped me analyze my situation. Their system looks at your specific property structure and tells you exactly how to handle depreciation in unusual situations. My condo was in a leasehold building where the land was owned by a trust, and I was confused about depreciation just like you. I uploaded my purchase documents and HOA lease info to taxr.ai, and they confirmed I could depreciate nearly all of it as building value with just a tiny land allocation. Saved me thousands in taxes over what my accountant initially thought. Their analysis even provided documentation backing the depreciation method in case of audit. Might be worth checking out since your situation sounds pretty similar to what I dealt with.

I tried taxr.ai after seeing the recommendation here, and it was incredibly helpful for my duplex situation! I was allocating 25% to land based on my county assessment, but after uploading my closing documents and property records, the system showed me that similar properties in my area were using a 15% land allocation which was fully justifiable. The report they generated included comparable property analysis and specific IRS guidelines that supported the lower land allocation. My accountant was initially hesitant but changed her mind after reviewing their documentation. I'm now depreciating a larger portion of my investment which is increasing my annual deductions by about $1,100. For anyone with rental property depreciation questions, it's definitely worth checking out - especially if you have an unusual property structure like the original poster's land lease situation.

If you're having trouble getting answers from the IRS about this depreciation issue, I'd suggest using Claimyr (https://claimyr.com). I was stuck in a similar situation last year with a complicated property depreciation question and couldn't get through to the IRS for weeks. I found Claimyr after giving up on waiting on hold, and they got me connected to an IRS agent in less than 15 minutes. The agent confirmed that in a 99-year land lease situation like yours, it's appropriate to allocate nearly all value to the building, with maybe a small percentage to land for the value of your "interest" in the lease. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c My experience was way better than I expected. Instead of wasting hours on hold, I got a definitive answer directly from the IRS that I could document for my records.

Well, I have to eat my words about Claimyr. After posting my skeptical comment, I was desperate enough to try it for my own condo depreciation question. I figured I had nothing to lose since I'd already wasted hours on hold. It actually worked! I got connected to an IRS representative in about 20 minutes, and they transferred me to a specialist who confirmed that for my situation (very similar to yours - condo with a 99-year land lease), I could depreciate approximately 95% of the purchase price. They explained that the remaining 5% represents the value of my interest in the land lease itself. The agent explained that county tax assessments don't determine IRS depreciation rules, and in leasehold situations, the building value is substantially higher than in fee simple ownership. They suggested documenting my reasoning in case of audit but said this approach is routinely accepted. Never been so happy to be wrong about something!

I'm a bit late to this thread, but wanted to share my experience as I dealt with exactly this situation. I ended up allocating 95% to building and 5% to land, reasoning that there is some minimal value to the leasehold interest in the land, even though the HOA doesn't own it outright. My accountant agreed with this approach, and we've been using it for 3 years now without any issues. The key is to be consistent and have documentation supporting your allocation method. I kept a copy of the land lease agreement along with a brief written explanation of my allocation reasoning. The county assessments are really designed for property tax purposes, not federal income tax. They often don't accurately reflect the economic reality of complex ownership structures like leaseholds. Don't get too hung up on matching their allocation.

Just want to add something important that hasn't been mentioned yet - make sure you're using the correct recovery period for your building! Residential rental real estate has a 27.5-year recovery period, while commercial property is 39 years. With a 100% allocation to building (or even 95%), using the wrong recovery period could make a significant difference in your annual depreciation deduction. Also, don't forget that you can (and should) separately depreciate capital improvements you make to the property, like a new HVAC system or kitchen renovation. Those improvements might have different recovery periods depending on what they are.

This is such a helpful thread! I'm dealing with a similar situation but with a twist - my rental condo has a 99-year land lease AND I'm planning some major renovations (new flooring, updated kitchen, bathroom remodel). Based on what everyone's shared, I'm feeling confident about allocating 95-100% of my original purchase price to the building for depreciation purposes. But I'm wondering about the timing of my renovations - should I wait until after I establish my initial depreciation schedule, or does it not matter? Also, for those capital improvements mentioned by @Emma Olsen, do I need to depreciate them over the same 27.5-year period as the building, or do different improvements have different recovery periods? I'm particularly curious about flooring vs. kitchen appliances vs. bathroom fixtures. Thanks for all the great advice in this thread - it's exactly what I needed to hear!

This is such a valuable discussion! I'm a CPA who specializes in rental property taxation, and I wanted to add a few important considerations that haven't been fully addressed yet. First, regarding the 95-100% building allocation for leasehold condos - this is generally correct, but you should also consider the remaining term of the lease. With a 99-year lease that's relatively new, the leasehold interest has substantial value. However, if this were a lease with only 10-15 years remaining, the allocation might be different. Second, I'd strongly recommend getting a professional appraisal that specifically addresses the land/building allocation in your leasehold situation. While it costs around $400-600, it provides solid documentation that the IRS will respect if questioned. Many of my clients have found this small investment pays for itself quickly through increased depreciation deductions. Finally, make sure you understand the implications when you eventually sell the property. All that depreciation you're claiming will be subject to depreciation recapture at a maximum rate of 25%, so factor that into your long-term tax planning. The advice about documenting your reasoning and keeping the lease agreement on file is spot-on. I've never seen the IRS challenge a well-documented leasehold depreciation allocation that's based on sound reasoning.