Unit 18: Taxes Affecting Real Estate

Additional Homestead Exemptions for Veterans: At least 10% disabled by misfortune or during wartime service (applies to surviving spouse who had been married to the veteran for at least five years on the date of death) Service-connected, totally disabled (applies also to surviving spouse) Surviving spouse of veteran who died while on active duty

$5,000 Homestead property 100% tax exempt Homestead property 100% tax exempt

Additional Exemptions Applied to Homestead Exemption: Surviving spouse who has not remarried Blind Person Totally and permanently disabled nonveteran Totally and permanently disabled quadriplegic

$500 $500 $500 Homestead property 100% tax exempt

Assessed Value

Worth established for each unit of real property for tax purposes by a county property appraiser.

Formula: Annual Property Taxes Due

taxable value × tax rate = annual property taxes due Example: Using the tax rate of .010 for a home assessed at $180,000 that has qualified for homestead tax exemption, the calculation of the county property taxes (nonschool taxes) is as follows: $180,000 assessed value - $50,000 homestead exemption = $130,000 taxable value × .010 tax rate = $1,300 property taxes due

Example: In 2013, a nonresidential real estate investment property was purchased for $2,350,000, with a land value of $250,000. What is the amount of the yearly depreciation deduction?

$2,350,000 - $250,000 land value = $2,100,000 depreciable basis $2,100,000 ÷ 39 years = $53,846 annual depreciation deduction (rounded to nearest dollar)

Example: In 2013, a residential real estate investment property was purchased for $250,000, with a land value of $50,000. The depreciable basis is $200,000 ($250,000 sale price less the land value). What is the amount of the yearly depreciation deduction?

$200,000 depreciable basis ÷ 27.5 years = $7,273 annual depreciation deduction

primary tax districts

city, county, and school board

The SOH benefit is the difference between the assessed value and the market value of a homesteaded property due to the annual limit on increases in assessed value. Example: Assume a homestead has a just value of $300,000, an accumulated $40,000 in SOH protections (called SOH assessment limitation or SOH benefit), and a homestead exemption of $25,000 plus the additional $25,000 exemption on nonschool taxes. What is the taxable value of this homestead?

$300,000 - $40,000 SOH benefit = $260,000 assessed value $260,000 - $25,000 base homestead = $235,000 taxable value for school taxes $260,000 - $50,000 total homestead = $210,000 taxable value for nonschool taxes

Exempt Properties

Properties that have been decreed to be excluded from taxation or claim by others. Example: churches and nonprofit organizations

Dates to file for Homestead tax exemption

Applicants must reside in the home and have legal title to the property as of January 1 to be eligible to file for the homestead tax exemption. First-time applicants must file an application with the county property appraiser's office on or before March 1. Some counties allow homeowners to file the initial application throughout the year. However, if the application is filed after the March 1 deadline, the homestead exemption will not take effect until the following year.

Homestead Tax Exemption

Florida residents who hold title to a home in Florida and use the home as their permanent residence may establish their residence as a homestead. Floridians who homestead their residence receive a homestead exemption, which reduces the amount of property taxes owed. A person who holds title to more than one residence in the state of Florida may homestead only one residence.

Florida has legislated a "cap" (ceiling) that limits cities, counties, and school boards to a basic real property tax rate of no more than

10 mills each, except for voted levies

The Internal Revenue Service (IRS) has currently established useful asset life as

27.5 years for residential rental property and 39 years for nonresidential income-producing property.

The Save Our Homes (SOH) amendment to the Florida Constitution caps how much the assessed value of homesteaded property may increase in a given year. According to Chapter 193, F.S., the just value of homesteaded property may be increased by either:

3% annually (based on the assessed value for the prior year); or the percentage change of the Consumer Price Index (CPI) for the preceding year, whichever percentage is less.

Mill

A unit of money used to specify a property tax rate ($1 for each $1,000 of taxable value).

Ad Valorem

According to the value; in proportion to worth.

The taxable gain on real estate is determined by two factors:

Adjusted basis is the original purchase price, plus expenses associated with the purchase and any capital improvements. Amount realized from the sale is the sale price less the expenses associated with the sale.

Like-kind Exchange

An exchange of real property held for investment for another property held for investment that qualifies for deferment of takes from gain on the sale.

The cash "reserve" for replacements is not deductible for tax purposes; however, any replacement expenses actually paid during the tax year may be deducted. Example:

An investor maintains a reserve in the operating budget of an apartment complex for replacement of items such as carpet, kitchen appliances, and roof shingles. The reserve account totals $180,000. The $180,000 may not be deducted to calculate taxable income. During the tax year, the investor replaced the carpet in 10 of the units at a cost of $20,000. The investor may reduce the taxable income by the $20,000 carpet expense.

Deductions for investers

Investors may deduct the interest paid on the mortgage loan, as well as the costs of obtaining borrowed money. Mortgage interest is deductible in the year paid. Loan origination fees and points are only deductible if charged as a percentage of the loan amount. These fees and points must be amortized over the life of the loan.

Special assessment tax liens are a type of

SUPERIOR LIEN (TAKE PRIORITY OVER OTHER LEANS) with the exception of ad valorem tax liens

Cumulative Homestead Tax Exemptions The taxable value of a homesteaded property is calculated by totaling all the tax exemptions that apply to a particular owner and deducting this amount from the assessed value.

Example: What is the total homestead exemption for a widower with an assessed value of more than $75,000 on a qualifying homesteaded property? $50,000 homestead exemption + $500 surviving spouse additional exemption = $50,500 Example: What is the total homestead exemption for a blind surviving spouse with an assessed value of greater than $75,000 on a qualifying homesteaded property? $50,000 homestead exemption + $500 blind exemption + $500 surviving spouse exemption = $51,000 The property tax exemption for a homestead is deducted from the assessed value of the property before property taxes are calculated. The result is the taxable value. Formula: Taxable Value assessed value - homestead exemptions = taxable value The taxable value for calculating school taxes uses only the base $25,000 homestead exemption because only the base $25,000 homestead exemption is exempt from school board taxes. Example: The assessed value of a homesteaded property is $350,000. Calculate the taxable value for school property taxes and nonschool property taxes. $350,000 assessed value - $25,000 base homestead exemption = $325,000 taxable value for school taxes only Use the total homestead exemption to calculate the taxable value for city and county taxes: $350,000 assessed value - $50,000 homestead exemption = $300,000 taxable value for city and county taxes (non-school taxes)

Taxable Income

Gross income minus tax deductions; net operating income plus reserve for replacements minus financing costs and allowable depreciation

Amount of exemption

Homeowners are entitled to a $25,000 homestead exemption from the assessed value of the home for city, county, and school board taxes. Homeowners are entitled to an additional $25,000 exemption from city and county taxes (but not school board taxes) if the property's assessed value is greater than $75,000 (see Homestead Exemptions). Example: A homesteaded condominium unit has an assessed value of $49,000. What is the amount of the homestead exemption? The assessed value is less than $75,000. Therefore, the total applicable homestead exemption is $25,000. Example: A homesteaded single-family residence has an assessed value of $350,000. What is the amount of the homestead exemption for this property? This homesteaded property qualifies for the entire $50,000 homestead exemption because its assessed value exceeds $75,000: $25,000 base homestead exemption from city, county and school taxes + $25,000 additional exemption from city and county taxes = $50,000 total homestead exemption

The SOH benefit is portable.

Homestead property owners are able to transfer their SOH benefit (up to $500,000) to a new homestead within two years of giving up their previous homestead. If the just value of the new homestead is more than the previous home's just value, the entire cap value can be transferred. If the new homestead has a lower just value, a percentage of the accumulated benefit may be transferred to the new homestead.

Green Belt Law

Legislation that authorizes county property appraisers to assess land used for agricultural purposes according to its current value as agricultural land.

Boot

Money or other property that is not like-kind, which is given to make up any difference in value or equity between exchanged properties.

Tax advantages of owning a principal residence are as follows:

Mortgage interest is deductible. Interest paid on a mortgage loan on a principal and second home is deductible (certain limitations apply). Property tax is deductible. The annual property taxes paid on principal and second homes are deductible. IRA withdrawals for first-time homebuyers. First-time homebuyers may make penalty-free (but not tax-free) withdrawals up to $10,000 from their tax-deferred individual retirement funds (IRAs) for a down payment. Different IRS rules apply to withdrawals from Roth IRAs. Exclusion of gain from the sale of a principal residence. Up to $250,000 of gain ($500,000 for married couples filing a joint return) realized on the sale or exchange of a principal residence may be excluded. Additional tax benefits to homeowners are as follows: Interest home equity loans is deductible. The interest paid is deductible if the loan does not exceed $100,000. Mortgage loan origination fees and points are deductible. Loan origination fees and points paid on a mortgage loan to purchase or construct a principal residence are deductible in the year they are paid. Points paid on a refinance loan must be amortized over the life of the loan. Points charged to finance a second home must be deducted over the life of the loan.

Immune Properties

Real property that is owned by a unit of government and is not subject to taxation. Examples: county courthouses and military facilities. Immune properties also include special properties, such as municipal airports, that have been made immune by statute or ordinance.

Example: A homesteaded single-family residence has an assessed value of $350,000. The millage rate for the school district is 6 mills, city 7.1 mills, and county 8.2 mills. How much is owed for school district taxes? How much is owed for city and county taxes? What is the total property tax bill for this property?

Step 1: Begin by calculating school taxes. Taxable value for calculating school district taxes applies to the base $25,000 homestead exemption. To multiply by 6 mills, convert to a decimal: 6 mills = .006. $350,000 assessed value - $25,000 base homestead exemption = $325,000 taxable value for school taxes only $325,000 taxable value × .006 = $1,950 school district taxes Step 2: Calculate nonschool taxes. Taxable value for calculating city and county taxes applies to the entire $50,000 homestead exemption (the assessed value of this property exceeds $75,000). $350,000 assessed value - $50,000 homestead exemption = $300,000 taxable value for city and county taxes 7.1 mills city + 8.2 mills county = 15.3 mills = .0153 (decimal form) $300,000 taxable value × .0153 = $4,590 city and county taxes Step 3: Determine total taxes due. Add the property taxes for schools and the property taxes for city and county: $1,950 school district taxes + $4,590 city and county taxes = $6,540 total property taxes due

Example: The homeowner is interested in finding the amount of savings in property taxes realized from the tax exemptions. What is the amount of savings to the homeowner resulting from the homestead exemption applied to school board taxes? What is the amount of savings resulting from the homestead exemption applied to city and county taxes? What is the total amount of savings from property taxes realized by this homeowner? Formula: Property Tax Savings total exemptions × tax rate = property tax savings

Step 1: Calculate savings from school taxes. To calculate the savings resulting from the homestead exemption applied to school district taxes, multiply the millage rate for schools (in decimal form) by the base homestead exemption: $25,000 base homestead exemption × .006 = $150 savings from school district taxes Step 2: Calculate savings from nonschool taxes. To calculate the savings resulting from the homestead exemption applied to city and county taxes, multiply the millage rate for city and county by the total applicable homestead exemption: $50,000 total homestead exemption × .0153 = $765 savings from city and county taxes Step 3: Determine total tax savings. Add the property tax savings for the school district to the property tax savings for the city and the county: $150 + $765 = $915 total savings realized

Steps to protest the tax assessment done on your property.

Step 1: Got to County Property Appraiser's office (either the assessment will be reduced or denied) Step 2: Go before value Adjustment Board: (approved or denied by 5 board members) Step 3: Go to Court (approved or denied)

If a married couple who files jointly realizes a profit from the sale of their home that exceeds $500,000, what is the result? A) The excess gain will be taxed at the homeowner's income tax rate. B) Up to $125,000 of the excess profit will be taxed as a capital gain. C) The excess gain will be taxed at the current applicable capital gains rate. D) The homeowners will not pay capital gains tax if at least one of them is older than 55.

The answer is the excess gain will be taxed at the current applicable capital gains rate. Gain is not taxed up to $500,000.

Special Assessment

Taxes levied against properties to pay for all, or part of, improvements that will benefit the properties being assessed.

Exclusion of Gain From the Sale of a Principal Residence

The IRS allows homeowners to exclude up to $250,000 of gain ($500,000 for married couples filing a joint return) realized on the sale of a principal residence. Any gain above the exclusion is taxed at the applicable capital gains rate. The exclusion is allowed each time taxpayers sell a principal residence, as long as the homeowners have occupied the property as their residence for at least two years during the five-year period ending on the date of the sale. The taxpayer is not required to reinvest the sale proceeds in a new residence to claim the exclusion. The exclusion of gain is generally allowed only once every two years. However, homeowners who do not meet the two-year requirement because of a change in health, job transfer, or other allowable reasons may be eligible for a prorated exclusion of gain.

Assessment Limitation (SOH Benefit)

The accumulated difference between the assessed value and the market value of a homesteaded property due to limit on increases in the assessed value.

Debt Service

The amount of money needed to meet the periodic payments of principal and interest on a loan that is being amortized.

The city is petitioned to pave the streets in a neighborhood. The paving cost is $32 per foot, and the city is to pay 25% of the cost. There are homes on both sides of the streets to be paved. If the lot frontage on the street is 105 feet, the special assessment for the street paving for this homeowner is A) $2,520. B) $630. C) $3,360. D) $1,260.

The answer is $1,260. 105 front feet × $32 per foot = $3,360; $3,360 × .75 (owner's share of cost is 100% - 25%) = $2,520. $2,520 ÷ 2 (one-half of the street paving cost) = $1,260.

An investor purchased a commercial building in January for $524,900. The contract specified that 80% of the purchase price be allocated to the structure, and the remaining purchase price be allocated to the land. What is the annual depreciation deduction? (Round to nearest dollar.) A) $3,817 B) $13,459 C) $10,767 D) $15,270

The answer is $10,767. $524,900 × .80 = $419,920 building. $419,920 ÷ 39 years = $10,767.

A development company purchased 1,000 acres of land from a foreign seller for $2,850,000. Federal law requires the buyer to withhold from the seller and pay to the IRS approximately A) $28,500. B) $42,750. C) $285,000. D) $427,500.

The answer is $427,500. The IRS requires that buyers withhold 15% of the gross sale price. The buyer must report the purchase and pay the IRS the amount withheld.

A homesteaded single-family residence has an assessed value of $92,800. The owner is a 25% service-disabled veteran who is 75 years of age. What is the total homestead tax exemption? A) $30,000 B) $50,500 C) Totally tax exempt D) $55,000

The answer is $55,000. The solution is $50,000 homestead exemption + $5,000 disability = $55,000 total homestead tax exemption.

Taxable Value

The assessed value less allowable exemptions resulting in an amount to which the tax rate is applied to determine property taxes due.

A homeowner originally purchased a new home for $325,000. During the period of ownership, the homeowners spent $25,000 in capital improvements. The homeowners sold the home 15 years later for $449,900. The homeowners paid a brokerage fee of 5% of the sale price and paid out-of-pocket closing costs totaling $3,250. What is the homeowners' capital gain from the sale? A) $74,155 B) $125,645 C) $96,650 D) $77,405

The answer is $74,155. Solution: $449,900 sale price × .05 = $22,495 broker commission. $449,900 - $22,495 - $3,250 closing costs = $424,155 amount realized from sale. $325,000 purchase price + $25,000 capital improvements = $350,000 adjusted basis. $424,155 - $350,000 = $74,155 capital gain.

Homeowners originally purchased a new home for $225,000. During the period of ownership, the homeowners spent $27,500 in capital improvements. When the homeowners sold the home 15 years later for $359,900, they paid a brokerage fee of 5% of the sale price and paid out-of-pocket closing costs totaling $2,550. What is the homeowners' capital gain from the sale? A) $114,355 B) $86,855 C) $48,045 D) $197,500

The answer is $86,855. $359,900 sale price ×.05 = $17,995 broker commission. $359,900 - $17,995 - $2,550 closing costs = $339,355 amount realized from sale. $225,000 purchase price + $27,500 capital improvements = $252,500 adjusted basis. $339,355 - $252,500 = $86,855 capital gain.

The just value of a homesteaded property in Leon County is $425,800. The Consumer Price Index for the previous year was 2%. The property's just value increased the maximum allowed under the Save Our Home Amendment. By what percentage did the just value increase? A) 2% B) Percentage passed by the residents of Leon County C) 3% D) Percentage increase approved by the county commissioners

The answer is 2%. The just value of homesteaded property may be increased either 3% annually (based on the assessed value for the previous year) or by the percentage change of the Consumer Price Index for the preceding year, whichever is less.

Which property is exempt from property taxes? A) Florida Museum of Natural History B) Church C) Federal Reserve building D) Air Force base

The answer is church. Exempt properties include property belonging to churches and nonprofit organizations. Immune properties are city, county, state, and federal government buildings.

Tax advantages of homeownership do NOT include A) a tax deduction of the interest paid on a home equity loan that does not exceed $100,000. B) up to $10,000 in penalty-free withdrawals from an IRA if used as a down payment on a personal residence for first-time homebuyers. C) exclusion of gain from the sale of a principal residence up to $500,000 for a single adult. D) a tax deduction of property taxes paid.

The answer is exclusion of gain from the sale of a principal residence up to $500,000 for a single adult. The IRS allows an exclusion of up to $250,000 of gain ($500,000 for married couples filing a joint return) realized on the sale of a principal residence.

If a request for a property tax adjustment is denied, what is the property owner's next step? A) Sue the county property appraiser B) Contact the county tax collector or a representative C) File a petition with the Value Adjustment Board D) File a certiorari proceeding with the county court

The answer is file a petition with the Value Adjustment Board. If the property owner's request for an adjustment is rejected, the owner may file an appeal (petition) with the Value Adjustment Board.

The Value Adjustment Board is composed of A) one school board member, two county commissioners, and two citizen members. B) three school board members and two county commissioners. C) the city manager, property appraiser, and three other elected officials. D) two school board members and three county commissioners.

The answer is one school board member, two county commissioners, and two citizen members. The board is made up of five members.

Which statement is FALSE regarding property taxes? A) Ad valorem tax means according to value. B) The county property appraiser assesses all real property within the county. C) Property taxes for the previous year are due on November 1. D) Property taxes become a lien on all real estate in Florida on January 1 each year.

The answer is property taxes for the previous year are due on November 1. Property taxes are due November 1 for the current year. Property taxes are paid in arrears, meaning that although they are assessed on January 1, the bill is not due until November 1 of the same year.

Which item is NOT a deductible expense for an income-producing property? A) Depreciation B) Hazard insurance C) Reserve for replacement D) Mortgage interest

The answer is reserve for replacement. Reserve for replacement is not a cash expense and therefore is not deductible.

Redemption of a Tax Certificate

The county tax collector issues a check to the certificate holder for the face amount of the certificate and the interest earnings when the property taxes are paid. For a certificate to be redeemed by the owner of the property, the tax collector must collect the face amount of the certificate plus all accrued interest. If the property owner does not pay the outstanding taxes and accrued interest within two years from the date the tax certificate was sold, the certificate holder can apply for a tax deed. The statute of limitation on a tax certificate is seven years from the date of issuance. If a tax deed has not been applied for within seven years and no other administrative or legal proceeding exists, the tax certificate is null and void by operation of law.

Just Value

The fair market value.

Tax Rate

The percentage of value that is used to determine the amount of tax to be levied against each individual unit of property; ad valorem (according to the value).

Capital Gain (or Loss)

The profit (or loss) from the sale of an asset, including real property.

Installment Sale

The seller receives the proceeds from the sale in periodic payments over time.

Ad valorem means according to cost. True False

The statement is false. Ad valorem means according to value. Real estate taxes (commonly called property taxes) are based on the value of real property, hence the term ad valorem tax.

The purpose of Florida's Green Belt Law is to protect coastal property from commercial development. True False

The statement is false. Florida's Green Belt Law was designed to protect farmers from having property taxes increased just because the land might be in the path of urban growth and therefore well suited for development.

Floridians who homestead their residence and who reside on the property as their permanent legal residence are eligible for a $50,000 homestead tax exemption from city, county, and school board taxes. True False

The statement is false. Homeowners are entitled to a $25,000 homestead exemption from the assessed value of the home for city, county, and school board taxes. Homesteaders with assessed values greater than $75,000 are entitled to an additional $25,000 exemption from city and county taxes only. Homesteaders with assessed values between $50,001 and $75,000 receive a prorated amount of exemption in addition to the $25,000 base exemption.

Mortgage origination fees (points) paid on a refinance mortgage loan are deductible in the year they are paid. True False

The statement is false. Points paid when refinancing a loan must be deducted over the life of the loan.

Property taxes become a lien on January 1 and are junior to mortgage liens. True False

The statement is false. Property taxes constitute a lien superior to all other liens on real property. Property taxes become a lien on January 1 each year.

Special assessments are levied according to the value of a property. True False

The statement is false. Special assessments are one-time taxes levied on properties to help pay for public improvements that benefit the property. Special assessments are not ad valorem taxes; they are not levied according to the value of a property. Usually, special assessments are levied on a front-foot basis for items such as sidewalks and street paving. They are often levied on a per hookup basis for utility and sewer improvements.

The IRS useful asset life of nonresidential income-producing property is 27.5 years for calculating depreciation allowance. True False

The statement is false. The useful life of nonresidential income-producing property is 39 years. The useful life of residential rental property is 27.5 years.

A short-term capital gain is the sale of an asset held for less than 12 months. True False

The statement is true. Capital gains (and losses) are either short term (the asset is held for less than 12 months) or long term (the asset is held for more than 12 months).

Homeowners who have had the homestead exemption on their current home in the preceding year can transfer their SOH benefit to a new home. True False

The statement is true. Homeowners who have had the homestead exemption on their current home in either of the two preceding years can transfer their SOH benefit to a new home.

Government buildings are immune properties—that is, government buildings are NOT subject to taxation. True False

The statement is true. Immune properties are government buildings (city, county, state, and federal government properties) plus special categories that have been made immune by a statute or ordinance, such as municipal airports. Immune properties are not even assessed and are not subject to taxation.

Property taxes are paid in arrears. True False

The statement is true. Property taxes are not due until November 1 and do not become delinquent until April 1 of the following year.

the exclusion of gain from the sale of a principal residence is up to $500,000 of gain for married couples who file a joint return. True False

The statement is true. The exclusion of gain from the sale of a principal residence is up to $250,000 of gain, or up to $500,000 of gain for married couples filing a joint return, provided the taxpayer-homeowner had occupied the residence for at least two of the last five years.

The amount of property taxes paid to a tax district must come from its tax base

The tax base is the total assessed value of all taxable property in the tax district. The next component needed to compute a tax rate is the number and type of property tax exemptions granted.

Note that two separate types of value are involved in determining the actual property tax.

The tax rate, in mills, is always applied to the taxable value. Any exemption must be deducted from the assessed value to find the taxable value.

Formula: Taxable Value

assessed value - homestead exemptions = taxable value The taxable value for calculating school taxes uses only the base $25,000 homestead exemption because only the base $25,000 homestead exemption is exempt from school board taxes. Example: The assessed value of a homesteaded property is $350,000. Calculate the taxable value for school property taxes and nonschool property taxes. $350,000 assessed value - $25,000 base homestead exemption = $325,000 taxable value for school taxes only Use the total homestead exemption to calculate the taxable value for city and county taxes: $350,000 assessed value - $50,000 homestead exemption = $300,000 taxable value for city and county taxes (non-school taxes)

Formula: Net Operating Income (NOI)

effective gross income (EGI) - operating expenses = net operating income (NOI)

Partially exempt properties

is subject to taxation, but the owner is partially relieved of the burden. For example, all owners of homesteaded property are granted a partial tax exemption

Formula: Effective Gross Income (EGI)

potential gross income (PGI) - vacancy and collection losses + other income = effective gross income (EGI)

Property Tax Schedule: Jan 1 March 1 April 1 Nov 1 Dec 31

tax year begins. Property assessed. Lien attached. Tax exemption filling period begins. Tax exemption filing period ends. Property taxes for previous year become delinquent. Property taxes payable for current year. Current tax year ends.

A capital gain from the sale of real estate investment property can be used to offset a capital loss from the sale of other investment property. Furthermore, if an investor's capital loss exceeds capital gains

the investor may deduct up to $3,000 in losses in a given year. Assume, for example, an investor has two investment properties. One earns a capital gain of $10,000, and the other has a capital loss of $15,000. The investor can offset the $10,000 gain with $10,000 of the loss. This leaves a net $5,000 loss of which the investor can deduct $3,000. The investor must carry forward the remaining $2,000 loss to the next year. A loss from the sale of your personal residence is not deductible.

To convert millage to its decimal form, move the decimal point

three places to the left of the written or unwritten decimal point. For example, 20 mills = .020 and 25.9 mills = .0259.

To convert the tax rate from a decimal form to mills, simply move the decimal point

three places to the right. Add zeros, if necessary. Always use three digits when expressing tax rates to prevent confusion. For example, .009 = 9 mills and .010 = 10 mills.

Formula: Straight-Line Method

total cost to acquire property - value of the land = depreciable basis depreciable basis ÷ useful life (27.5 or 39 years) = annual IRS depreciation deduction