Basis of Land Value

Purchasing land is 1 way to invest in real estate for profit or secure a piece of property at which you can finally construct a house. But land is different from other types of real estate, making it more challenging to evaluate and evaluate for tax purposes. The value of land depends on many factors.

Tax Basis

Finding out the tax basis of land is essential for anyone who intends to take an income tax deduction for depreciation of property. But, IRS policy dictates that no citizen can claim a depreciation for land because land doesn’t lose value over time, as homes and other types of property do. This usually means that the tax basis of a bit of land is the first appraised value in the time of purchase. Taxpayers can determine that number by subtracting the appraised value of a house in the appraised value of the property as a whole.

Market Trends

The fair market value of a bit of land changes with upward and downward trends in the real estate market, even as the tax basis remains the same. Real estate businesses perform comparative market analyses, or CMAs, to put value on real estate, such as land, based on which similar pieces of home are selling for in the present market.


The grade of a bit of land, which relates to its topography and level above, or below, the level of the closest road goes a long way toward determining its value. Land with a very large tier will have to have a lot of the dirt and stone removed before anyone can build on it. This added cost detracts from value, as a good grade adds to the value of a bit of land.


Natural attributes on a piece of land can function as a basis for a higher or lower value, depending on the type of characteristic and the planned usage for the land. Items such as ponds or streams may add to the pure beauty but can be a supply of a decrease assessment if they’d make it difficult to secure building permits for the site. The same is true for stone, which might have to be removed before building can begin, and plants, which may be a benefit or a drawback if they are too plentiful.


Finally, a plot of property’s place will always affect its value. Attractive regions with a high rate of economic growth and an influx of people will see land values grow steadily, while the opposite is true for depressed areas. Access through major streets and changes in the surrounding landscape can also play a role in changing the value of a piece of land over time.

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