How to Determine Depreciation of Land vs. House

Many real estate investors know that they can depreciate their investment homes over 27.5 years. With a $300,000 house, this generates around $10,000 a year in additional tax write-offs, saving thousands of dollars of tax liability. While the IRS lets you write off your house, they don't let you write off land since they treat land like precious metal holdings. Since land doesn't get "used up" the way that buildings do, you can't depreciate it. This means that you need to allocate the value of your investment homes between the depreciable building and the non-depreciable home.


Determine your cost basis in the property. This is typically the net price that you paid for it after adding in the closing costs that you pay.


Look up the land value in the appraisal that you ordered as a part of buying the property and getting a mortgage. If you did not receive an appraisal, look to the property's assessed value to obtain the value of the land, but ordering an appraisal may be a better choice. To be safe, consult with your CPA on how to properly allocate the value, since the IRS does not have a hard-and-fast rule.


Subtract the land value from your cost basis. The remainder is the building's basis, which is usually fully depreciable over 27.5 years.


Calculate your annual depreciation by dividing the building's depreciable basis by 27.5 and claim it on line 19.h of your Form 4562 and on line 18 of your Schedule E, as of 2011.