I think I figured it out. It appears the entire point of in the screenshot provided is just to determine the amount to be allocated toward the land value. Why doesn't Turbo Tax just use the property assessed land value? That's what the IRS recommends. But one main thing:
The answer given is incorrect.
For your example, it would be $50,000 for land, and then only $200,000 for the improvements. This equates to 20% land and 80% improvements. Turbo Tax then uses these percentages from the tax appraisal to allocate my actual costs (which were entered previously) between the land and the improvements. So in your example, if my costs previously added to $275,000, then Turbo Tax says the land is 20% x $275,000 which is $55,000 and the improvements are 80% x $275,000 which is $220,000. So only $220,000 is depreciable. This is very unclear, and I was only able to figure it out by trial an error. The thing is, I can't find anywhere in the IRS guidelines or instructions that recommends this method for allocating my costs. IRS just says use the $50,000, and depreciate the $225,000. The result from using the land/value ratio happens to increase the land value and decrease the allowable depreciation works is not in my favor. Although, if my costs are LESS than the assessed values, then this method would work in the taxpayers favor. Either way, I can't find any IRS guidelines that say to do it that way.
Turbo Tax should just calculate the allowable depreciation by subtracting the land value from actual costs...simple enough.
