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Tax Question - Improvement Ratio
Posted on 3/25/14 at 6:48 pm
Posted on 3/25/14 at 6:48 pm
Question for the MB tax gurus --
For an investment property, is it reasonable to use the replacement cost of the building (as calculated and documented by the insurer) along with the land value (as determined by the state assessor) to calculate the improvement ratio for depreciation purposes?
In this particular scenario, using the methodology above = improvement ratio of 81%. Using the assessment of the building vs. the assessment of the land = 67%. Obviously, 81% is much more desirable for the property owner
Background - property was purchased for typical market price with many comparable sales in the same neighborhood
Assume the following values:
$360k purchase price
$385k replacement cost
$90k land assessment
$179k building assessment
For an investment property, is it reasonable to use the replacement cost of the building (as calculated and documented by the insurer) along with the land value (as determined by the state assessor) to calculate the improvement ratio for depreciation purposes?
In this particular scenario, using the methodology above = improvement ratio of 81%. Using the assessment of the building vs. the assessment of the land = 67%. Obviously, 81% is much more desirable for the property owner
Background - property was purchased for typical market price with many comparable sales in the same neighborhood
Assume the following values:
$360k purchase price
$385k replacement cost
$90k land assessment
$179k building assessment
1
Posted on 3/25/14 at 8:23 pm to Feed Me Popeyes
If you have land assessed at $90K you'd be hard pressed to justify a lower amount allocated to land without a detailed appraisal. As for how you would allocate the remainder of the purchase price you night want to consider the value of any land improvements like a driveway, parking lot, fence or walkways. They can be depreciated over 15 years compared to the building that will have either a 27.5 or 39 year depreciable life.
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