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... because there is still a building on the property, I would say that using the current value of the land as a residential lot would still be appropriate, because that's what the lot was valued as when you put the property into service as a rental.

Thanks, AJ. That makes sense.

Kathleen
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The property has a creek running through it and the original owner built right next to that creek. The house would not be permitted today because of set-back requirements. In fact, if there were a significant fire, it is unlikely we would be allowed to rebuild.

Does this make the land worthless such that all the value is in the house for depreciation purposes?


I doubt it. All land has some type of value. And if you can build elsewhere on the site, even if it's not on the original foundation, the land would have residential building lot value. Even if you can't rebuild at all, it would still have some value.

As an example, my road runs along a bluff that has newer setback requirements that would not allow most of the houses on the bluff side of the road to be rebuilt. In fact, one of the houses was condemned because the bluff eroded enough so that the septic tank was exposed. Before the house was condemned, the lot was valued at ~$160k, as a residential lot. After the house was condemned and torn down, the lot is still valued at ~$60k, even though it's not buildable. You could possibly park an RV on it, or use it for pasture.

AJ
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Thanks, AJ. So we need to figure out exactly where we could build considering modern-era set-backs, as well as what could be done with the bare lot if nothing could be built. I think I can find those out :-)

Kathleen
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So we need to figure out exactly where we could build considering modern-era set-backs, as well as what could be done with the bare lot if nothing could be built.

I don't know that you need to figure out exactly where you could rebuild - just that you are able to rebuild on the property. If the property is rebuildable, then just using the current residential lot value would be the right thing to do. It's only if you can't rebuild that you would need to figure out what the residual value would be. And even then, because there is still a building on the property, I would say that using the current value of the land as a residential lot would still be appropriate, because that's what the lot was valued as when you put the property into service as a rental.

I guess what I'm saying is that I don't think that you really need to worry about what happens if the building burns down or gets condemned, unless that actually happens. For right now, the property, as-is, has land with a residential lot value, and a building value. The building value plus any improvements that you make would be what you could depreciate.

AJ
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... because there is still a building on the property, I would say that using the current value of the land as a residential lot would still be appropriate, because that's what the lot was valued as when you put the property into service as a rental.

Thanks, AJ. That makes sense.

Kathleen
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