Depreciation Schedules Reset for the New Owner
After the sale of a property, the tax depreciation schedule resets for the buyer based on the purchase price allocation between land and improvements. The new owner begins depreciating the value of the improvements over the IRS-defined recovery period.

• Land value is not depreciable; only improvements (e.g., buildings, infrastructure) are
  
• The new depreciation basis equals the allocated portion of the purchase price
  
• Depreciation begins in the month the buyer places the property in service for business or investment use
  

Allocation Must Be Supported and Properly Documented
To establish a valid depreciation schedule, the buyer must perform a reasonable cost allocation between land and depreciable improvements. This can be done using appraisal reports, tax assessments, or a formal cost segregation study.

• Appraisals or closing statements help justify value allocation
  
• A cost segregation study accelerates depreciation by identifying short-life assets (e.g., HVAC, pavement, fencing)
  
• IRS requires the allocation to be reasonable and consistently applied
  

Prior Owner’s Depreciation Does Not Transfer
The seller’s prior depreciation schedule does not carry over to the new owner. The new depreciation begins fresh based on the buyer’s cost basis. However, the seller may be subject to depreciation recapture taxes on previously claimed depreciation.

• The buyer starts a new depreciation timeline from the acquisition date
  
• Recapture taxes may apply to the seller at a rate of up to 25%
  
• Depreciation deductions can impact the buyer’s future capital gains calculations