Allocate sale of rent house between land and improvement

[aws316]

Hello all, using TT deluxe windows desktop version.

I understand that you allocate the sales price and sales expenses of a rental property between land and improvement; however, I'm unsure of what method to use to get the percentages between the two.

When purchased in 2010, the tax assessment showed the improvement value was 77% and land 23%.

The latest 2020 assessment showed 48% for the improvement and 52% for the land.

BUT, the property was sold to an investor who intends to demolish the house and build a gas station. So, to me, it seems at the time of sale to this investor, the house is valued at 0% and the land is 100% of the sales price.

Should we use the appraisal district's percentages or the "investor's intention" percentages? THANK YOU!!

PS: is we use 0% improvement and 100% land, how would that affect depreciation recapture, total gain, capital gain,  etc.

[Critter-3]

Use the same % ratio that you used  for the depreciation originally.  

[aws316]

I've read other posts that have responses telling the poster to use the year of sale appraisal district's percentages.

Is there not an exact IRS procedure on this?

[Carl]

Is there not an exact IRS procedure on this?

No, there is not. The only thing is, if you sold at a gain then you must show a gain on all assets. Doesn't matter if that gain is $1 on some assets and thousands of dollars on other assets. A gain is gain, regardless.

LIkewise, if sold at a loss then show a loss on all assets.

[Critter-3 · Accepted solution]

It may not be an IRS rule however it is SOP for bookkeeping rules  and the way I was taught to prepare taxes.  Once you start a system of depreciation you must continue the same method or as the IRS for a change which they usually will not allow.   

Trying to change the percentages at the sale date is awkward at best so just stick to what works and don't try to reinvent the wheel.  

[aws316]

@Critter-3 Thanks for the help! I'll stick with the SOP's and use the original allocation.