The land allocation is the highest-leverage number on your schedule

Why it matters more than anything else

Land is never depreciable. The split between land and improvements therefore determines the entire depreciable base before any reclassification question arises.

Move a $2,000,000 purchase from a 25% land allocation to a 15% land allocation and you have added $200,000 of depreciable basis — before a study touches anything.

How it usually gets set

By copying the ratio off the county property tax assessment. It is quick, it is documented, and it is frequently wrong in both directions, because assessors value for property tax purposes on a mass-appraisal basis rather than to allocate a specific transaction.

Better sources

A purchase appraisal with an explicit land value. A separate land appraisal. Comparable land sales in the submarket at the acquisition date. An allocation stated in the purchase agreement, which the parties are generally bound by if it reflects arm's-length negotiation. Replacement cost analysis of the improvements with land as the residual.

Whatever the source, document it contemporaneously. An allocation supported at acquisition is far easier to sustain than one reconstructed years later.

Where the assessment ratio genuinely misleads

High-land-value urban submarkets where assessment lags market movement. Properties bought below replacement cost, where the improvement value in a transaction is lower than assessed. Recently constructed buildings where the assessment has not caught up. Any market that has moved sharply since the last reassessment cycle.

The relationship to a study

A cost segregation study starts from the depreciable basis and allocates it among components. If the land allocation is wrong, everything downstream is proportionally wrong.

Part of what we do on any engagement is examine the allocation and tell you if it looks unsupportable. Sometimes that means telling an owner their land value is too low, which is not the news they expected — but a defensible schedule is the point.

Land improvements are not land

Worth stating plainly because the confusion is common: paving, landscaping, fencing and site lighting are depreciable 15-year property, not part of the non-depreciable land allocation. Lumping them into land is a costly and frequent error.