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In the near future, I am planning to rent out my Manhattan condominium apartment (since it's a bit small for my growing family) and as I am trying to figure out all the tax/cost/cashflow issues.
I read that I need to depreciate the property every year. To calculate the depreciation I need to know the "land value" of my property.
How would I know what the land value is for my apartment?
I looked at the NYC property record where they show the assessment, but I don't see the land value noted there. Thanks!
Not only are there many ways to determine the depreciation amount (and depreciation method too but that is a different subject) but you get to choose which way you determine it.
To be clear, you only depreciate the improvement value (structure) as land is not depreciated. If you know the total value and land value you can determine the improvement value. But that is not the only way.
I can tell you what I do for a condo but I do not suggest you do the same without understanding your particulars.
I got the amount the insurance company used as a replacement cost of the whole building and divided it by my unit’s portion of the whole building. As an example, if you own 1% of the whole building, take 1% of the entire building replacement cost as your improvement value.
Using this method, I came up with just short of 75% of the appraised value. That seems reasonable for a condo so I went with it.
So start with that, or find out what the standard construction cost per square foot is in your area and multiply it the number of square feet of your unit. The two numbers should be close because that is what the insurance company did to come up with the replacement cost.
If you can get the HOA (management company,, or??) to give you a copy of the insurance page where it lists the replacement cost, that is best as you will then have it documented.
Doing it the other way, determine what land value is in your neighborhood and calculate your building’s land value with that. Then determine your portion of the land. Subtract that from the appraised value of your unit to get the value of the improvement.
As I said, you can use whatever you want to determine the value of your portion of the building. If you do get audited, the IRS will ask how you came up with your number. It is possible to get a pretty steep penalty (I think 20%) of the portion the IRS feels is over what it should be. So you want to be close but as long as you can document your reasonable calculation, you should be OK.
I am not an accountant or tax preparer and my suggestions should not be used without your own research.
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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There is NO land value in a Condo. Your condominium space is what you own. You also have an undivided interest in the common areas of the development. Your association, in effect, is the owner of the common areas and they probably get a tax bill from the taxing authority for it, which is why it doesn't show up on your tax assessment.
I would love it if that were true. Frequently the land has considerable value depending on the location. Who does own it if not the condo owners? If it is in fact owned by a different person and you pay lease to that person for usage of that land, then there is no land value as your purchase price for the condo only included the building. That is never the case in California, the condo always includes the land on which it sits. Maybe NYC is different (I doubt it)
A tip for the original poster. You will be rewarded if you study rental tax law in depth. It is complicated. Congress has made it more and more complicated over the years in an effort to not allow the rich to avoid having deduction pits to offset their earnings. Do not rely on forums to determine your action, only use it to help with real research (e.g. www.irs.gov)
Even if you choose to have a tax preparer do the taxes, make sure they understand rental tax law. Even then, the more you understand, the better positioned you will be to see if they are doing it using the method that is best for you. Frequently they take shortcuts to approximate values. This saves them time but may not be best for you.
You will want to check with a CPA - don't take any tax advise from a post.
Ok. Disclaimer stated:
An air space condo has no land value. The depreciation is taked on 100% of your cost basis, over 27.5 years. A single family home or townhouse would be based on 80% of your cost basis, allowing 20% for land value, again over 27.5 years.
Again, speak with a CPA. Your cost basis is a very important number and must be well founded and defendable in an audit. You will also want to speak with your CPA about other costs and expenses. S/he will need to determine which costs should be depreciated and which should be considered and "expense".
Best wishes.
The commonly owned land is referred to as "strata" and yes you do "own" this land as a condo unit holder.
Therefore some percentage of your unit cost is in consideration of this strata.
You are able to expense, based on your jurisdictional tax regulations (I am a Canadian accountant so for us it is CCA at 4% of the undepreciated Capital Cost as long as you do not use this CCA to create or enlarge a rental loss).
Yes, consult an accountant unless you already have one, but a simple email to your attorney who performed your closing should verify this fact, understandably I am not going to provide my credentials online for liability reasons.
There is NO land value in a Condo. Your condominium space is what you own. You also have an undivided interest in the common areas of the development. Your association, in effect, is the owner of the common areas and they probably get a tax bill from the taxing authority for it, which is why it doesn't show up on your tax assessment.
This.
But since this thread is two years old, I'm sure Leo has figured it out by now.
IRS: Hey look, this guy has a condo and claimed land depreciation. Hehe. AUDIT!!!
Land doesn't depreciate. The land value would be subtracted from the cost basis.
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