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fitzerrr
Returning Member

Depreciation using a Land Contract

When you buy a property via land contract (agreement for sale, contract for deed, etc...) who gets to depreciate the property? Does the buyer buying the property via land contract get to depreciate the property even though they won't hold title and deed until the agreement is fulfilled? What constitutes ownership to be able to depreciate?

5 Replies
tagteam
Level 15

Depreciation using a Land Contract

The buyer is allowed to take (actually must take) depreciation deductions in the year of the sale while the seller must report depreciation recapture income in the year of the sale.

 

See https://www.irs.gov/publications/p537#en_US_2020_publink1000221670


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fitzerrr
Returning Member

Depreciation using a Land Contract

So as long as you aren't selling to a related person as defined by the IRS on an installment sale, you could depreciate the property over 27.5 years correct?

 

tagteam
Level 15

Depreciation using a Land Contract

27.5 years for residential rental real estate.

Mike9241
Level 15

Depreciation using a Land Contract

the buyer is selling on the installment basis and must stop depreciating. you are purchasing on the installment basis and must depreciate. many business assets are bought and sold on the installment basis and the buyer generally doesn't get clear title until all the payments are made.  nevertheless, the buyer gets to depreciate the property.

 

tagteam
Level 15

Depreciation using a Land Contract

The buyer is generally considered to have equitable ownership in the property. 

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