Discussion:Condominium Depreciation--residential rental

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Discussion Forum Index --> Basic Tax Questions --> Condominium Depreciation--residential rental


Discussion Forum Index --> Tax Questions --> Condominium Depreciation--residential rental

Jerseygirl.Sharron (talk|edits) said:

8 February 2009
How do I determine the value of land for a residential condo rental so that I may subtract it from the total valuation? Have you used zero as a land value and survived an audit? I know that a condo owner owns (1) the part of the unit "from the paint in"and (2) an undivided percentage of the common areas (which includes land and improvements). Here, the interest conveyed was 0.73% of the common area. The tax assessor's determination is no help here as I think it is completely wrong. In Austin, Tx. the assessor allocated 48% to land and the remainder to the improvement (the condo has been fully assessed for many years). Has anyone had an audit (or know of a tax case) where this was determined?

Hunter07 (talk|edits) said:

8 February 2009
I have no answer, but similar question--- tax assessor listed entire value in condo building and zero land. (In Rhode Island).

Riley2 (talk|edits) said:

8 February 2009
Right, but when your client purchased his condo, he was also purchasing a tenants in common interest in the land. Therefore, you need to know his TIC percentage to make this allocation.

Guya (talk|edits) said:

8 February 2009
I think this is a great question especially now that FMV will be below cost in many cases.

Mrbarrytax (talk|edits) said:

9 February 2009
years ago i owned rental condo and was shocked to read an irs pub on condos/co-ops indicating that one can take 100% depreciation on condo cost and allocate zero to land. you might want to check that pub for guidance.

Lhhesscpa (talk|edits) said:

9 February 2009
Bary, you might be thinking of Publication 527 which says you can depreciate condos but not coops. That still doesn't solve the issue of whether land value in a condo is a factor. -- Larry Hess, CPA | Albuquerque, NM

Riley2 (talk|edits) said:

9 February 2009
That publication has been updated and corrected. See Pub 527, page 17.

Lhhesscpa (talk|edits) said:

9 February 2009
Thanks, Riley. I think I see what you're referring to on p. 17. -- Larry Hess, CPA | Albuquerque, NM

TexCPA (talk|edits) said:

9 February 2009
I assume you have searched the appraisal website:

[TCAD]

  • If no land value I use the TIC rate mentioned above
  • If land value is given per unit, I use the % allocation to the Landlord basis

It appears that this my be an 'older' condo in Austin, not one of the new fancy ones downtown, so the Land value will be greater than the value of condo (per TCAD), an example of this would be a condo built around UT back in 60's / 70's

  • Would it be worth the $ to pay $300 and get an independant appraisal?

I'll look for a tax case

good Luck

TexCPA 20:47, 8 February 2009 (CST)

RoyDaleOne (talk|edits) said:

9 February 2009
This is a cost segregation problem. lol

Jerseygirl.Sharron (talk|edits) said:

9 February 2009
Tex, It was a condo built in the 80's. The county did break down the taxes into land value ( which was about 48% of the total value) and improvement value (about 52%). The property was inherited and I do have a copy of notice of appraised value of the year in question. An appraisal was obtained but the appraiser just provided 3 comp's. He told me he chose a 5% allocation for the land value because he "thought that sounded reasonable". There is a huge difference between using the TIC rate of .73% and the rate used by the county. Am I missing something here (besides a good appraiser)?

TexCPA (talk|edits) said:

9 February 2009
sharon

Here is one I found [page 55-56]

"Generally, “We do not consider that the amount for which the property was assessed for purposes of local taxation is necessarily a reliable criterion to be used in estimating its fair market value.”34 Frazee v. Commissioner, 98 T.C. 554, 563 (1992).However, in appropriate circumstances tax-assessed values can be useful as a guideline or as corroboration of other evidence of fair market value. Kellahan v. Commissioner, T.C. Memo. 1999-210."

AND

"“When, as in this case, the Commissioner has determined an allocation of basis, a taxpayer bringing a deficiency proceeding bears the burden of proving by a preponderance of the evidence that the Commissioner’s determination is erroneous.” Sleiman v. Commissioner, supra at 1359; see also Byram v. Commissioner, 555 F.2d 1234, 1236 (5th Cir. 1977), affg. T.C. Memo. 1975-135"

I don't think you are missing anything, this is the part were you make an informed decision and substantiate your allocation accordingly, In your case i would not use the TIC rate of .73% nor would I feel comfortable with the 5% allocation unless the comps stated as such, possibly if the appraiser put the 5% allocation as an amendement to the comps, might be enough substantiation, but I still think 5% is too low.

hope this helps

TexCPA 12:27, 9 February 2009 (CST)

Jerseygirl.Sharron (talk|edits) said:

9 February 2009
Tex, thanks a million. I told the appraiser the same thing this morning (that 5% was arbitrary and too low). Turns out that he had spoken to the Assessor's office (TCAD) and obtained the DOD value of the entire parcel (the land & improvements which comprise the entire common elements). He then multiplied the "entire parcel value" by the TIC rate (.73%) to determine the value of "the land" associated with the condo.

The new appraisal sounds much more reasonable than the original although it is still using the TIC rate of .73%.

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