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HOME › GLOSSARY › DEPRECIABLE BASIS · VOLUME I · 2026 EDITION
GLOSSARY ENTRY · DEFINED TERM

Depreciable Basis

The portion of a property's adjusted basis subject to depreciation under IRC §167 and §168. Generally equal to the property's cost less the value allocated to land. Land itself is never depreciable; the depreciable basis is the building plus building improvements.

STATUTE BASIS · IRC §167(c) · IRC §1011 (adjusted basis)

In context

Calculating depreciable basis is the first step in any depreciation computation. The mechanics:

  1. Start with cost — purchase price plus closing costs that capitalize under §263A (legal fees, recording fees, transfer taxes, but not loan-origination costs)
  2. Subtract land value — typically allocated using county assessor records when reliable, or by statistical metro/state ratios when not
  3. Add capital improvements — improvements that capitalize under §263 increase the basis; routine repairs and maintenance do not

For real property, the typical land allocation is 15–25% of acquisition cost in suburban markets, 25–40% in urban infill, and 5–15% in tertiary markets. The IRS Cost Segregation Audit Techniques Guide accepts county assessor records as a primary land-allocation source when the assessor’s ratio is reliable (defined in Pub. 5653 as having a ratio of assessed-to-market value within community norms).

For cost segregation, the depreciable basis is then reclassified into MACRS classes — 5-year, 7-year, 15-year, and 27.5- or 39-year — by an engineering analysis of the building’s components.