The short answer: no
Land is not depreciable. The IRS allows depreciation only for assets that have a finite useful life — assets that wear out, become obsolete, or are used up over time. Land does not wear out. It is expected to remain useful indefinitely regardless of how long you own it or what you build on it, so the tax code assigns it no recovery period and allows no annual deduction.
This rule is absolute: there is no election, no special circumstance, and no loophole that allows you to depreciate a plot of bare land. Whether you buy land to farm, rent, develop, or hold for appreciation, the cost allocated to the land itself never produces a depreciation deduction. Attempting to depreciate land — or to allocate too much of a purchase price to the depreciable building in order to inflate depreciation — is one of the issues the IRS flags in real-estate audits.
What you can depreciate instead
Even though the land itself is off-limits, a real estate investor has plenty of depreciable assets. The building sitting on the land is Section 1250 property depreciated over 27.5 years (residential rental) or 39 years (commercial), straight-line. Structural components like HVAC systems, electrical wiring, plumbing, and roofing are part of the building and share its recovery period.
Land improvements are depreciable separately. The IRS classifies driveways, sidewalks, fences, landscaping, and parking lots as 15-year property under MACRS. A cost segregation study can identify and reclassify personal-property components inside the building — appliances, carpeting, specialty lighting, cabinetry — as 5-year or 7-year property eligible for faster depreciation or bonus depreciation. None of this touches the land itself; all of it rests on correctly separating land value from the value of everything else.
How to separate land value from building value at purchase
When you buy a rental property, you need to allocate the purchase price between land and depreciable assets before you can start depreciating. The IRS does not prescribe a single method, but common approaches include:
County assessor's allocation: Use the ratio of assessed land value to assessed improvement value from the local tax assessment, applied to your purchase price. This is the simplest method and widely accepted, provided the assessor's values are reasonably current.
Appraisal: A professional appraisal that separately values land and improvements is the most defensible method, especially for high-value or unusual properties.
Replacement cost: Estimate what it would cost to replace the building (land is inherently what's left), then allocate accordingly.
Whatever method you use, document it — the land-building split is a foundational basis number that follows the property for the entire time you own it and affects your depreciation, your gain at sale, and your recapture. Getting it wrong early costs you deductions every year until you catch it.
A worked example of land vs. building allocation
You buy a duplex for $380,000. The county assessor values the land at $90,000 and the improvements at $270,000 in the most recent assessment, a 25%/75% split. Applying that ratio to your $380,000 purchase price gives a land allocation of $95,000 and a building allocation of $285,000.
Your depreciable basis is $285,000. Over 27.5 years on a straight-line basis, that produces about $10,364 per year in depreciation deductions. Your $95,000 of land cost produces zero deductions — ever. If you had mistakenly depreciated the full $380,000, you would have overstated your annual deduction by about $3,636 per year, creating a problem when the IRS eventually reconciles your depreciation schedule against the sale price.
What happens to land at sale
Since you never depreciated the land, its cost is still in your adjusted basis when you sell. Suppose you bought that duplex for $380,000 with $95,000 allocated to land, claimed $100,000 of depreciation on the building over the years, and sell for $520,000. Your adjusted basis is $380,000 − $100,000 = $280,000. Your total gain is $520,000 − $280,000 = $240,000.
Of that gain, $100,000 is unrecaptured Section 1250 gain (the depreciation) taxed at up to 25%. The remaining $140,000 includes the appreciation on both the building and the land — all taxed at long-term capital gains rates (0/15/20%). No separate 'land gain' category exists; the gain on the land is simply part of your total long-term capital gain, treated the same as appreciation on any capital asset.
Vacant land and development property
Holding bare land as an investment — waiting to develop or sell — produces no depreciation deductions at all. The carrying costs of vacant land (property taxes, mortgage interest if the loan is investment-related) are generally either deductible under the investment-interest rules (with limitations) or added to basis. Interest on a loan taken out specifically to purchase or carry undeveloped land held for investment is treated as investment interest expense, deductible on Schedule A subject to the investment-interest limitation — not as a Schedule E rental expense.
Once construction begins and you place the building in service, depreciation starts on the building portion of your total investment. The land cost allocated to the project never enters the depreciable basis — it remains in land. Developers who finance land and construction costs together need to carefully separate the two when the building is placed in service, because only the construction cost (and any soft costs properly capitalizable to the building) generates depreciation. Failing to make this separation — and trying to include land in the depreciable basis — is an error the IRS can recover as an overstatement of depreciation, with interest and potential penalties going back to the year the deductions were first claimed.
Can you depreciate a leasehold improvement on rented land?
If you lease land and build improvements on it, you generally can depreciate those improvements. You are the owner of the improvements for tax purposes (assuming the lease does not transfer economic ownership to the landowner), so you assign them a recovery period — usually the building's MACRS period (27.5 or 39 years), or potentially shorter if a lease-term limitation applies. The land itself is not yours to depreciate, but your investment in building on it is.
Tenant improvements in commercial leases follow a similar logic: the tenant depreciates qualified leasehold improvements over a statutory 15-year period under current law (subject to bonus depreciation rules). In all these cases, the key is that something is being depreciated — the improvement, the structure — while the underlying land itself does not enter the depreciation calculation.
Land improvements vs. the land itself
One of the most common points of confusion is the difference between 'land' and 'land improvements.' The land itself — the raw dirt, the lot, the acreage — is not depreciable. But specific improvements to that land — a parking lot, a fence, a retaining wall, a sidewalk, an irrigation system, landscaping installed for rental purposes — are treated as 15-year property under MACRS and are depreciable.
A cost segregation study typically identifies and segregates these land improvements so you can depreciate them on the 15-year schedule (or claim bonus depreciation) rather than lumping them into the 39-year building life. On sale, these 15-year land-improvement assets are Section 1250 property, so any additional depreciation (above straight-line) is recaptured as ordinary income. Keeping them distinct in your depreciation records makes the recapture calculation accurate at sale.
Farmland, timber, and mineral rights
Bare land never depreciates, but assets attached to or extracted from it can be recovered in other ways. On farmland, the soil itself is not depreciable, yet drainage tile, irrigation systems, fencing, paved lots, and single-purpose agricultural structures are depreciable land improvements or farm buildings with their own MACRS recovery periods. The dirt underneath them still recovers nothing.
Timber and mineral deposits are handled by a different mechanism entirely: depletion under IRC §§ 611–613, not depreciation. A landowner with a gravel pit, an oil or gas well, or standing timber recovers the resource's cost basis as the resource is harvested or extracted — using either cost depletion or, where allowed, percentage depletion. The land beneath the deposit is still nondepreciable; only the wasting resource is recovered, and only through depletion. Mixing up depletion and depreciation is a common error on returns for resource-bearing property.
State conformity to the land-building split
Most states begin their calculation from federal taxable income, so the federal land-versus-building allocation flows straight through to the state return — land that is nondepreciable federally is nondepreciable at the state level too. No state permits depreciating raw land.
The state-level wrinkles are almost always in bonus depreciation and Section 179 on the depreciable components, not the land itself. States such as California and New Jersey decouple from federal bonus depreciation, requiring you to add back the federal bonus deduction on cost-segregated 5-, 7-, and 15-year components and depreciate them on a slower state schedule. Treat the land allocation as fixed for both federal and state purposes, but check your state's conformity rules for how fast the building and its components depreciate.
Common land-allocation mistakes
Depreciating the full purchase price. The single most common error is running depreciation on the entire amount paid without carving out land. It overstates deductions every year and creates a reconciliation problem the IRS can unwind with interest and penalties.
Ignoring the assessor's ratio without support. Assigning an arbitrarily low land percentage to inflate depreciation invites challenge. If you deviate from the county assessor's land-to-improvement ratio, keep an appraisal or comparable land sales to justify it.
Forgetting to re-allocate after an addition. Building an addition or major improvement adds to the depreciable building basis, not the land — but the land figure stays fixed. Track additions separately.
Lumping land improvements into the building. Driveways, fences, and landscaping belong on a 15-year schedule, not the 27.5- or 39-year building life. Failing to separate them forfeits faster deductions.
Planning tips to maximize depreciable basis legitimately
Because every dollar allocated to land is a dollar you can never depreciate, investors have a legitimate incentive to support a defensible, building-weighted allocation — but it must be reasonable, not aggressive. Obtain a purchase-date appraisal that separately values land and improvements; this is the most defensible record if the split is ever questioned.
If the county assessor's land ratio looks high relative to comparable lots, gather comparable land sales that support a lower land value and document your reasoning. Finally, consider a cost segregation study: it does not reduce land value, but it shifts a portion of the building's basis into faster 5-, 7-, and 15-year asset classes, accelerating deductions without touching the nondepreciable land. The burden of proving a reasonable allocation is on you, so build the file when you buy, not years later under audit.
Frequently asked questions
Why can't you depreciate land?
Land has no finite useful life — it doesn't wear out, become obsolete, or get used up. Depreciation is available only for assets with a determinable useful life, so land never qualifies.
How do I separate land and building value for depreciation?
Common methods include using the county assessor's land-to-improvement ratio applied to your purchase price, or obtaining a professional appraisal that separately values land and improvements. Document the method and allocation in your records.
Can land improvements be depreciated?
Yes. Land improvements such as driveways, fences, sidewalks, landscaping, and parking lots are classified as 15-year MACRS property and can be depreciated — or eligible for bonus depreciation. They are Section 1250 property, not Section 1245.
What happens to the land cost when I sell?
The land cost stays in your adjusted basis and reduces the taxable gain at sale. If you never depreciated the land, there is no recapture on it — the land value simply contributes to your long-term capital gain (or reduces it) at the same 0/15/20% rates as other appreciation.
Can I depreciate land if I bought it for investment?
No. Bare land held for investment is not depreciable regardless of your purpose. Only once you construct a building on the land can you depreciate the building portion of your investment — the land allocation still does not depreciate. Carrying costs such as property taxes and investment interest on a land loan may be deductible under other code sections, but depreciation is simply never available for land itself.
Can you depreciate farmland?
No — the soil is not depreciable. But drainage tile, fences, irrigation systems, paved areas, and farm buildings are depreciable land improvements or structures with their own recovery periods, and natural resources such as timber and minerals are recovered through depletion, not depreciation.
Do states let you depreciate land?
No state permits depreciating raw land. States generally follow the federal land-building allocation, though some (California and New Jersey among them) decouple from federal bonus depreciation on the building's depreciable components, requiring a slower state depreciation schedule.
What percentage of a property's price is usually land?
It varies widely by market — often 15–30% in typical suburban areas, but far higher in dense urban markets where the lot is the main value. Use the county assessor's ratio or a professional appraisal rather than a rule of thumb, and document whichever method you choose.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.