State Specific Question About: OHIO (OH)

Ok, so I am still doing my taxes, and everyone on this site has been gracious and knowledgable about the questions I have asked so far. Before I ask these questions, I try to do my research, but this one comes up with no clear cut answer. So I am throwing it out there and see how all you wonderul Landlords determine this. How do you determine your land value and improvement value when doing your depreciation items on your taxes. Should you go by your property tax bill or take an educated guess based on recent real estate transactions in your community? I am anxious to hear your responses, because I am stuck on this one.

I just finished my taxes yesterday and went through this same exercise on my first rental. The duplex I bought was an older/historic home so the county tax records had a relatively low value for the $ of the home since it's 100+ years old. The appraisal from the lender however gave it a 75% improvement ratio, so I used this.

Google "every landlords tax deduction guide" you can download a PDF. It's a HUGE help for this type of stuff.

One portion of this book that saved me quite a bit of $ on taxes this year, and even more next year; was segmented depreciation (cost segregation). Your tax scenario may be different though..

Assuming you purchased this year, make sure you go through your HUD1 and add associated closing costs to the cost basis of the home before multiplying by the improvement ratio. I found an article by a CPA that breaks down line-by-line what's currently deductible and what get's added to the basis. Google "Tax Deductible Closing Costs on an Investment Property by Mark Minassian, CPA" it should be the first result.

I love the book "Every Landlord's Tax Deduction Guide" by Stephen Fishman. It does a great job of explaining things at a level that smart, but inexperienced, people can understand. In it he says 3 things that are important:

1. How you allocate your land/improvement ratio is the single most important factor that determines how much depreciation you deduct each year. You want your land to be worth as little as possible.

2. The IRS has no guidelines as to how you should calculate that ratio, so you can use any reasonable, defendable method that gives you the best answer.

3. Among the ways you could make the calculation are:

a) Your property tax bill (or help from the county office)

b) The replacement cost of your building and improvements

c) buyer-seller valuations

d) comparable land sales

anything else you can come up with that is reasonable, and you could defend to the IRS in the event of an audit. Since this info is never included in a tax return, the only time they would even question your method is if you get audited.

So, be honest and fair, but do everything you can to make the value of your home as high as possible, and the land as low as possible.