Define Land % on Rental Property for an apartment unit in a building

[SierraRomeo]

Hi all, here is the situation:

We own an apartment in a residential building abroad since 2008. We lived there for several years and after that it was vacant (not available for rent) until 2021. We turned it into a rental in 2022. 

Neither the title nor any other document (tax assessment, city records, etc) specifies the price of the land (or how much is land and how much is building). What I could find is that my apartment corresponds to 1/48th of the land since there are 48 apartments in the condo.

I can estimate the price of the land by comparing available land for sale in the same neighborhood.

My question is: Can I use this estimate land value divided by 48 as the value of the land? 

Example: If the land costs M$ 480.000 -> My part would be M$ 10.000. (M as an example currency)

The main issue is that the apartment would be in the M$ 480.000 range. 

Land would be only 5%. 

[RobertB4444]

The IRS has a fairly lengthy procedure to discuss how to value the land but your math is pretty solid.  I would go ahead and go with your valuation and just make sure to save the papers you used to come up with the  calculation in case you are ever questioned on it.

Here are the IRS guidelines on property valuation.

@SierraRomeo 

[Carl]

Can I use this estimate land value divided by 48 as the value of the land?

I don't see why not.  Just be aware that whatever value you give to the land is "a part of" the original price you paid for the unit; not a cost separate from it.

Typically, land values will be around 30% of the total cost of a property. But then "typical" is a house and lot. You have a unit within a larger structure. With 48 units I see no issues with the land value percentage being extremely low.

[SierraRomeo]

@RobertB4444 Thank you!! 

I do have another concern... let's see if you (or someone else) can help me on that. 

In 2008:

Paid : M$ 240,000.00

Exchange rate U$ 1 = M$ 2 (for example)

Paid in U$ Dollar: U$ 120,000.00

In 2022:

Current value of the property: M$ 480,000.00

Exchange rate U$ 1 = M$ 6

Current value in U$ Dollar: U$ 80,000.00

The value of the property increased in M$ but it dropped in U$.

Any concern here?

Thanks again.

[SierraRomeo]

@Carl Thank you. 

[Carl]

Your cost basis is what you paid for it when you originally purchased it. Today's exchange rate or the exchange rate on the date of conversion doesn't change that.

[AmeliesUncle]

For depreciation, you use the LOWER of (a) Cost or (b) Fair Market Value on the date of conversion.

Due to exchange rates, it seems like you would use the Fair Market Value ($80,000 US).

[SierraRomeo]

Thanks for confirming! That was exactly my doubt!