How To Find Out Land Value Of A Property

Whether you’re preparing to sell, updating your insurance, or simply curious, knowing the value of your land—separate from any buildings—is an important step in managing your property. This guide explores practical ways to estimate land worth, ranging from quick estimates to the formal methods required for tax and investment purposes.

Simple Methods for Quick Land Value Estimates

If your goal is just to get a rough idea of what your land is worth (not for legal or tax filings), these easy methods can help.

1. Check the County Tax Assessor’s Records

One of the fastest ways is to review your property tax bill. County assessors typically separate the land’s value from the value of buildings or improvements. While these numbers may not reflect current market conditions, they offer a basic ratio you can use for reference.

2. Use the Sales Comparison Approach (Vacant Land)

Another common strategy is to compare your property to recently sold vacant lots in your area. Appraisers often rely on this “sales comparison method” to determine land value, giving you a good sense of the current market price for similar parcels.

Calculating Land Value for Tax & Depreciation Purposes

When it comes to investment properties or rental real estate, separating land value from building value becomes critical. That’s because land is not depreciable, while buildings and improvements are. Properly calculating land value ensures compliance with IRS rules and helps you maximize deductions.

Why This Matters for Taxes

For investment or rental properties, the IRS requires you to establish a reasonable allocation between land and buildings. This affects:

• Compliance – Avoiding IRS disputes and audits

• Deductions – Claiming the right amount of depreciation

• Capital gains planning – Since depreciation affects how gains are taxed upon sale

Skipping or miscalculating this step could lead to missed deductions or potential penalties.

IRS-Recognized Methods for Allocating Land and Building Value

According to IRS Publication 551, you can allocate land vs. building value in two ways:

Method 1: Professional Appraisal Report (Most Accurate)

An appraisal, especially one that includes the Cost Approach, provides a highly reliable breakdown of “site” (land) and “improvements” (buildings). If you didn’t get an appraisal when purchasing, you can request a retrospective appraisal—a backdated estimate of value—which is strong documentation in case of an audit.

Method 2: County Tax Assessor’s Allocation (Most Common)

Your county assessor’s records also separate land and improvement values. To use this method:

1. Find the assessed “Land” and “Improvements” values on your tax bill.

2. Calculate the percentage of land value compared to the total.

3. Apply that percentage to your actual purchase price to determine the land’s cost basis.

This method is straightforward, free, and widely accepted, though assessed values may not fully match fair market values.

Advanced Strategy for Commercial Properties: Cost Segregation Study

For large commercial real estate, a cost segregation study goes beyond a simple land/building split. This engineering-based analysis breaks down property components into multiple asset categories, allowing for accelerated depreciation and greater tax benefits.

Risks of Not Splitting Land and Building Value

If you don’t properly separate land and building costs, the IRS can reallocate values, reduce your depreciation claims, and potentially assess back taxes with penalties.

For example, in the 2017 case Nielsen v. Commissioner, a taxpayer tried to depreciate the full purchase price (land + buildings). The IRS challenged this, and the court upheld the county assessor’s land allocation. This highlights why accurate documentation is essential.

Conclusion

When determining how to calculate land value, remember:

• Land value and building value must always be separated.

• Use defensible methods—like an appraisal or tax assessor’s allocation—to withstand audits.

• For commercial real estate, consider a cost segregation study to maximize tax savings.

By taking the time to calculate land value correctly, you’ll ensure compliance, protect deductions, and make smarter decisions for your real estate investments.