Hey guys,
How do you estimate the land’s portion of a real estate property? Do you wait for the Property Tax Assessment? Does an appraisal report show the percentage proportion of land value? What should I do if previous accountants did not separate value of the land (they claimed 4% CCA on the whole amount of the property)
If you’re lucky, the previous accountant capitalized only the cost of the building when it was acquired. Some people do that and never show the land. Otherwise, put as low a value as can be justified on the land and find out what CRA would do. It’s not like you can adjust tax returns from day one to correct the error. They should have explained to the client that they could save tax each year by claiming CCA, but that it would all come into income when the property is disposed of. Is the previous accountant still alive, and does he/she have insurance?
Not sure about the previous’s accountant situation… I guess I will just simply carry on the work. What is your approach in determining the land value though? Should I just take an average % if the clients are not able to provide me such information???
Use municipal assessment for the most recent year to pro-rate value between land and building. Or, if an official appraisal was done, it will specify the land value under “cost” approach section.
The last one I did was for the sale of a laundromat. My client asked the realtor for an appraisal to determine the property split (land vs structure). Instead, the realtor gave us a detailed list of similar sized vacant land with no structures for sale during that same time period and within a 5 km radius of the building my client was selling. I used an averaging of this information to approximate the value of my client’s land, claiming the balance of the sale price for the structure. By averaging, I took into consideration the price per square foot and that this was business property in a business district. The listings the realtor gave us included vacant properties in both the neighbouring residential area and the local business district.
Hope this helps.