How does land depreciate

In most cases, land does not depreciate, unless it is degraded by erosion, improper use, or perhaps zoning changes. Depreciation is either curable or incurable. Curable depreciation is a loss of value that can be corrected at a cost less than the increase in property value that would result if it were corrected, whereas an incurable depreciation either cannot be corrected or would cost more than any appreciation of property value.

Although the different types of depreciation can suggest improvements, it is difficult to calculate the actual amount, so a simplified straight-line method aka economic age-life method is used, that simply assumes that depreciation is linear over the lifespan of the structure, decreasing in value at a constant rate.

It is almost impossible to calculate land depreciation. The value of land is not constant on a long-term basis — it may enhance or may as well deteriorate. In other words, it is fluctuating. Hence, it gives an uncertain picture of the asset value, which is why calculations are difficult. If a graph is drawn for these values it would be like:. You are free to use this image on your website, templates etc, Please provide us with an attribution link How to Provide Attribution?

In this case, the value of land fluctuates. Understanding from depreciation point of view, an asset whose value reduces within a given period of time, can be used for calculating depreciation. A piece of land was a marshy area in It was converted into a usable land in when real estate products were at their peak, by dumping sand and other material and were turned into a solid lot of land.

The value of this piece went up manifold, and the land was in great demand. As and how developments were done, the property prices went up and up. In , unfortunately, the land was hit by an earthquake and the entire development made over the land was devastated. The land itself got worn out in a manner that was unable to be used again. Businesses can write off the decline in the value of land, but only when they sell the land.

Even if the business knows the land is declining in value, it can't claim it as a depreciation expense, because land isn't depreciable. Costs involved in preparing land for business use can be depreciated if they are so closely tied to other depreciable assets that you can determine a usable life for them.

For example, if you were to construct a new building and plant bushes around the perimeter of the foundation, those bushes are essentially part of the building. You can't bulldoze the building without removing the bushes, so they have the same usable life as the building. The cost of the landscaping can be depreciated on the same schedule as the building itself.

But land preparation expenses not directly associated with depreciable assets are not depreciable. Cam Merritt is a writer and editor specializing in business, personal finance and home design.