Real estate depreciation question for my LLC properties - need help with parking lot depreciation rules

I finally took the plunge and decided to handle taxes for my 2-property real estate LLC myself this year instead of paying someone else to do it. I asked my previous tax guy to send over the depreciation schedules they've been using so I could see what I'm working with. Most of it makes sense to me after some research, but I'm confused about one thing. On one of my rental properties, there's a parking lot that's listed as a separate asset on the depreciation schedule. It's the only asset that uses a different depreciation method compared to everything else. While the buildings use straight-line depreciation over 27.5 years, this parking lot is being depreciated differently. I can't figure out why or if this is correct. Can anyone explain what the standard depreciation approach should be for a parking lot on a rental property? Is it supposed to be treated differently than the main structure? Any help would be much appreciated as I try to get this right without messing up my filing.

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20 comments

Yara Khoury

•8M

Land improvements like parking lots are typically depreciated over 15 years using a 150% declining balance method, which is different from residential rental buildings that use the 27.5 year straight-line method. It makes sense that your parking lot would be on a separate schedule. The IRS classifies paved parking areas as "land improvements" under asset class 00.3 of the Modified Accelerated Cost Recovery System (MACRS). Since it's considered separate from the building itself, it gets its own depreciation timeline and method. This separation is actually beneficial for you tax-wise! The shorter depreciation period (15 years vs 27.5 years) means you can deduct the cost faster, which improves your near-term cash flow. Just make sure you're following the correct percentage calculations for each year based on the 150% declining balance method if that's what your previous tax preparer was using.

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Yara Khoury

•8M

Yes, the shorter 15-year period is definitely beneficial as it allows you to recover your costs faster through larger yearly deductions. You generally need to continue using the same depreciation method that was initially chosen for each asset. Switching methods mid-stream can create complications and might require IRS approval through Form 3115 (Application for Change in Accounting Method). If you want to keep things simple going forward, you can use straight-line depreciation for any NEW assets you add to your properties, but I'd recommend continuing with the established methods for existing assets. The tax software you're using should be able to carry forward and calculate the proper depreciation for each asset based on prior year information.

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Keisha Taylor

•8M

I had a similar situation with my rental properties and found an incredible tool that saved me from making some costly mistakes with my depreciation schedules. Check out https://taxr.ai - it actually analyzed my depreciation schedules and previous returns and pointed out that my CPA had been incorrectly depreciating several assets, including a repaved parking area. The software flagged that my parking lot was being depreciated as part of the building (27.5 years) when it should have been on a 15-year schedule as a land improvement. This ended up saving me over $2,000 in taxes last year alone! It also explained exactly which IRS guidelines applied and why the parking lot needed its own schedule. Super helpful when taking over your own tax prep from a professional.

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Keisha Taylor

•8M

You don't need perfect records to get started. The tool can work with your previous year's return to establish a baseline, then you can add improvements as you go. It actually helped me properly categorize some bathroom renovations I had lumped together incorrectly. The tool handled some complex situations well, but did flag a few items where human review was needed. For instance, with my duplex that has mixed personal/rental use, it correctly identified the split but asked me to confirm the exact percentage allocation. What impressed me was that it knew to ask rather than making assumptions. For really unusual situations, they have tax pros who review the AI's work, which helped with my property that has a cell tower easement.

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Amina Bah

•8M

I was super skeptical about tax AI tools but finally gave https://taxr.ai a try after struggling with my rental property depreciation. Holy crap, it actually found that my previous accountant had been lumping all land improvements together instead of separating them properly. The tool caught that my parking lot, fencing, and landscaping should all be on different depreciation schedules! It correctly identified that parking lots should be using 15-year 150% declining balance method under MACRS. It also pointed out that I could have been deducting my new gravel driveway as a separate improvement rather than a repair expense. I was able to file an amended return and got back $3,700 that I would have missed. Honestly surprised something automated could catch things my accountant of 5 years missed.

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Oliver Becker

•8M

If you're having trouble getting clear answers about your depreciation questions, you might want to try speaking directly with an IRS agent. I know, I know - sounds impossible right? After spending hours on hold multiple times, I finally discovered this service called Claimyr (https://claimyr.com) that got me through to a real IRS agent in about 15 minutes. I had a complicated question about how to handle depreciation recapture on a property sale where I had used different depreciation methods for the building and parking lot. The agent walked me through the exact forms I needed and how to report everything correctly. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Seriously, being able to talk to an actual IRS person saved me from making what would have been a very expensive mistake on my taxes. Might be worth considering if you get stuck on the technical aspects of your LLC's depreciation schedules.

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Oliver Becker

•8M

It's not a hold service - they use some kind of technology that connects to the IRS phone system and navigates the menu maze for you. When they're about to connect with an agent, they call you so you don't have to sit on hold for hours. You just pick up when it's your turn to talk to someone. I completely understand your skepticism - I felt exactly the same way. I was convinced the IRS was deliberately making it impossible to get help. But this service actually worked for me when I was desperate to get clarification before filing my amended return for my rental properties. I was shocked when my phone rang and there was an actual IRS agent on the line. The time saved was worth every penny to me, especially with filing deadlines approaching.

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Amina Bah

•8M

I need to apologize to Profile 5 and admit I was completely wrong about Claimyr. After my snarky comment, I was still stuck with my depreciation recapture questions and getting desperate, so I tried https://claimyr.com as a last resort. I'm still in shock that it actually worked. I got a call back in about 20 minutes and spoke with an IRS agent who answered all my questions about how to handle the depreciation schedules for my parking lot and other land improvements. She even explained how to properly document the different recovery periods on Form 4562. I've been trying to reach the IRS for MONTHS about this issue. Seriously, if you're doing your own taxes for rental properties and need clarification straight from the source, this service is worth it. I've never been so happy to be wrong about something.

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Natasha Orlova

•8M

Adding to what others have said about parking lots - make sure you're documenting the basis for the parking lot correctly. If you purchased the properties with the parking lots already in place, the value should have been separately assessed from the land and building in your original cost basis allocation. If you added or substantially improved the parking lot after purchase, that's when you'd start a new 15-year depreciation schedule for just that improvement. This is a common area where DIY tax filers mess up - not properly allocating purchase price between land (non-depreciable), building (27.5 years), and land improvements like parking lots (15 years).

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Natasha Orlova

•8M

You don't necessarily need a new appraisal. You can make a reasonable allocation based on the total purchase price. One approach is to check your property tax assessment which sometimes breaks out land vs improvements. Another method is to estimate the replacement cost of the parking lot (get a quote from a paving company for similar square footage) and use that as your basis. Just document your methodology for determining the allocation in case of an audit. The key is having a reasonable approach that you can justify. For a typical residential rental property, the parking lot might represent 5-10% of the total improvement value (not including land). Once you determine that value, you can continue the 15-year depreciation schedule that your tax preparer started.

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Yara Khoury

•8M

Yes, you should be depreciating your asphalt driveway separately! Driveways, like parking lots, are considered land improvements with a 15-year recovery period under MACRS, not part of the residential rental building (which is 27.5 years). If you've been lumping it together with the building, you might want to file Form 3115 to correct this accounting method. The benefit is that you'll get catch-up depreciation deductions. For example, if you've been depreciating the driveway over 27.5 years for the past 5 years, you've only deducted about 18% of its value, when you should have deducted about 33% using the 15-year schedule.

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Freya Larsen

•2M

Just wanted to add a practical tip for anyone handling their own rental property taxes - keep detailed records of when you make any improvements to parking areas, driveways, or other land improvements. I learned this the hard way when I repaved part of my rental's parking lot last year. The IRS distinguishes between repairs (deductible immediately) and improvements (must be depreciated). If you're just filling potholes or sealing cracks, that's typically a repair. But if you're repaving a significant portion or expanding the parking area, that's an improvement that starts a new 15-year depreciation schedule. I made the mistake of deducting my $8,000 repaving job as a repair expense initially. After doing more research (and getting some advice similar to what's been shared here), I realized it should be depreciated as an improvement. Had to file an amended return, but it actually worked out better in the long run since I can depreciate future improvements more aggressively than the straight-line method I was using for everything else. The key is documenting what work was done and why - take photos before/after and keep all contractor invoices. Makes it much easier to justify your depreciation choices if questions come up later.

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Misterclamation Skyblue

•23d

This is really helpful advice about the repair vs improvement distinction! I'm dealing with something similar - I had some concrete work done on my rental property's walkways and small patio area last year. The contractor charged $3,500 to replace about half the concrete that was cracked and uneven. Would this fall under the same 15-year land improvement depreciation rules as parking lots and driveways? Or since it's walkways and a patio, does it get treated differently? I initially claimed it as a repair expense but now I'm second-guessing myself after reading all these comments about proper depreciation schedules for different types of property improvements.

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