Sometimes you need to break down the value of your house from the value of the land that it sits on. While you might want this information for your own knowledge, it's also necessary if you're depreciating any portion of your home. Although investors depreciate the homes they buy for rental purposes, you can also depreciate a portion of your home if it contains a home office. However, you can't depreciate the land that it sits on.
Find your cost basis by adding your home's purchase price to the closing costs that you paid when you bought it, excluding any loan-related costs. The IRS lets you include costs such as transfer taxes, recording fees, utility connection fees and title insurance, along with your purchase price. For instance, if the house and land together totaled $175,000, and you paid another $4,100 in closing costs, your basis would be $179,100.
Divide the assessed value of your house by the total assessed value of the house and land. For instance, if your county assessed your home at $140,000 and the land at $31,000 for a total assessed value of of $171,000, you would divide $140,000 into $171,000 to find that the house represents 81.87 percent of the total value of your property.
Multiply your cost basis by the percentage share of the house to find the value of the house. With a house that represents 81.87 percent of the total property's value of $179,100, the house would be worth $146,629.
Subtract the house's value from the total value to find the land value. If the total value is $179,100 and the house's value is $146,629, then the land's value would be $32,471.
Items you will need
- Property tax bill
- If you have a copy of an appraisal, and it breaks out the house and land values, you can also use it to establish the allocation of value between the house and land. The Internal Revenue Service's rule of thumb is that your allocation should be based on fair market values, however you calculate them. You can also use an allocation that appears in your purchase agreement, if it has one.
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