Depreciation of Land

by Marquis Codjia - Updated September 26, 2017
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.

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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.

About the Author

Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.

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