How can I calculate real estate depreciation tax?

DEAR BOB: I own rental properties in Las Vegas and have beencalculating my depreciation tax expense by using the property tax assessor’stax ratio between land and building value. My problem is that the depreciablebuilding value is very low at only 36 percent to 50 percent. I think I shouldbe taking a bigger depreciation write-off. I’ve heard of investors using an80-to-20-percent ratio of building to land. What should I use? –Julie T.

DEAR JULIE: The exact answer depends on the type ofproperty. For example, if you own a rental condominium, your building-to-landratio will probably be about 98 percent to 2 percent.

Purchase Bob Bruss reports online.

The local property tax assessor’s ratio of building to landmeans nothing. He still gets the same market value and property tax no matterwhat the ratio. All that matters to him is the total property value for taxassessment purposes.

When the IRS audited me on this issue several years ago, Ishowed the IRS agent my property insurance agent’s replacement-cost estimatefor the structures. The IRS readily accepted the insured replacement cost forallocating depreciation, with the remainder of my property purchase cost goingto the nondepreciable land value.

Since then, I have talked with tax advisers and otherinvestors who use the same method of taking the insurance replacement cost tojustifiably arrive at the depreciable value of the structure. For more details,please consult your tax adviser.


DEAR BOB: I am a real estate agent about to make a purchaseoffer on a property with a contingency. Please outline how to make thisappealing to the property seller –Dede C.

DEAR DEDE: You ask a difficult question. In the currentbuyer’s market for homes in most cities, most home sellers are glad to receiveany purchase offer.

If the seller doesn’t accept your buyer’s offer, be sure theseller counteroffers to keep negotiations moving. Don’t leave until you have awritten counteroffer.

Make the contingency clause reasonable, such as acontingency for the buyer’s approval of a professional inspector’s reportwithin five business days. Provide a similar reasonable time for a mortgageappraisal within a short time. In most cities, inspectors and appraisals aren’ttoo busy to meet short deadlines today.

However, if the contingency clause involves the sale of thebuyer’s current home, show the seller the home is currently listed for salewith a reputable local realty agent. Include a 48-hour release clause in thepurchase offer in case the seller receives a better no-contingency purchaseoffer from another buyer.


DEAR BOB: I own a rental condo in Tampa, Fla. It iscurrently rented on a one-year lease. I live out of state. What is the best wayto protect myself from liability in the event of an accident on the property? Ihave considered transferring title to a LLC (limited liability company). But Iam concerned that will require special insurance and additional transfer costs.Would buying additional liability insurance be better? – Jeff M.

DEAR JEFF: Be sure you have adequate rental owner’sliability insurance for at least $300,000. If your net worth exceeds $1million, ask your insurance agent about an excess liability umbrella policy for$2 million or $3 million. The cost is very cheap, usually just a few hundreddollars per year.

However, be sure your basic rental owner’s insurance and theumbrella policy are with the same insurer so there is no conflict betweeninsurers if a large negligence liability loss occurs in your condo. Also, yourumbrella liability policy will protect you against other losses, such as your negligencein a serious auto accident.

The new Robert Bruss special report, “How to Sell YourHouse or Condo for Top Dollar in a Buyer’s Market,” is now available for$5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at1-800-736-1736 or instant Internet delivery at Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center

Copyright 2006 Inman News

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