Commercial Real Estate Depreciation

What is the name of your state? California

I know commercial real estate held for investment purpose can be depreciated over 39 years. If I bought the commercial real estate in 2006 and land is not depreciable, how do I know what % to allocate to the total purchase price as depreciable real estate vs. non-depreciable land. Can I use the county's assessed land value or do I use between 5% - 10% of purchase cost as a guideline? Thanks.

You have the duty to allocate the value between land and improvements on the land appropriately. You may have to defend that allocation to the IRS someday. Ballpark guestimates ("between 5%-10%") are not a proper allocation.

If there is no defendable way to allocate the values, the IRS will always (at least in our experience) accept the property tax statement allocation. The problem is that is usually too conservative--placing too much value in land. Remember, you are not using the actual number on the property tax statement, but the ratio. If you are going to use the statement as your position, you add the two numbers together. Then you take the land portion and divide it by the total number to get a percentage. You then multiply the purchase price by the percentage to get the land amount.