Depreciation of Land

Land is not subject to depreciation.

Land is a long-term or fixed asset that a business or individual owns and intends to use in operating activities. Depreciation helps a company recover the cost of fixed assets.

Depreciation Defined

Depreciating a long-term asset means spreading its cost over a defined number of years. If you own a fixed asset, such as property, equipment or machinery, accounting principles allow you to depreciate the asset. The Internal Revenue Service (IRS) also allows you to deduct depreciation expenses from your taxable income.

Land Depreciation

The IRS and financial accounting rules do not allow land depreciation. However, you may write down, or reduce, the value of land if you believe environmental or regulatory conditions have adversely affected the property's worth. For instance, if you own land in an earthquake-affected area, you may conduct an impairment test and write down the land's worth.

Other Considerations

You must record impairment loss in the statement of profit and loss, or P&L. You classify land as a long-term asset in the balance sheet.

References

• University of Idaho: FASB 144 Impairment of Assets
• CCH Business Owner's Toolkit: Which Assets Can Be Depreciated?
• Internal Revenue Service: Depreciation