Determining Land vs Building Value on Foreign Rental Property

[ForeignRentalProperty]

Hi,

I purchases a residential rental property in Scotland.  The valuation is only of the land and building combined with no separation.  I also have a insurance valuation as part of the Home Report giving market value.  How do I determine the ratio to use for foreign property? 

I've tried extensive googling and examining the Council's assessor website, but that is only for commercial property.

Thank you in advance.

[DianeW777]

The best way to handle that would be to look for sales of only land, or contact a realtor in Scotland near the location to help determine the value for land versus building. 

If you do not have any information to determine land value, the IRS auditor will not have any information either.

Percentage allocation is one way to make a decision. 

If your personality is aggressive, you may want to allocate 80% of the value to the building and 20% of the value to the land. If your personality is conservative, you may want to allocate 60% of the value to the building and 40% of the land.

This percentage method should reflect a reasonable inference as to the land value, then you can proceed to complete your tax return.

[Carl]

Once you have exhausted all other reasonable means of finding documented facts that will support the split, you can generally take a 20%/80% split with the higher percentage to the structure and you won't raise any flags (that I know of) with the IRS. Even a 25%/75% would be acceptable if located in an area where land is at a premium.