There is another version on knowledge sharing from http://homeguides.sfgate.com/. The discussion by by Kevin Johnston, Demand Media shows that “Buildings and land are treated differently for tax purposes”. Below is the details on the discussion by Kevin.
When you own a home that is on land, you must value the home separately from the land. This valuation affects your property taxes and depreciation on the home if it is rental property. Local records do not always reflect a fair valuation of the home vs. the land, so you have to know how to find the separate values yourself.
Depreciation Rules
According to the Internal Revenue Service, you cannot depreciate land. However, if you own a house that you rent out or that you bought as an investor, you can depreciate the building. The reasoning is that the building loses value with wear and tear, whereas land does not.
Property Tax Assessment
You can go to your county assessor’s office and find out the assessment of the land and the home separately. If this figure seems reasonable, you can use it as a basis for depreciating the building. For example, if the assessor determines that your land is worth $80,000 and the home is worth $150,000, only depreciate the $150,000 figure.
Your Own Valuation
Sometimes assessor’s valuations are so far off that the home may not be valued properly. For example, if the land is valued at $150,000 and the house is valued at $20,000, a mistake may have been made. You can set a value for the land vs. the home if you have a basis to do so. According to Two Wise Acres, a good rule of thumb is 20 percent land value and 80 percent building value. However, you should check comparable assessments in your area to determine values that have been placed on vacant lots, land and homes together, and homes separately. If you have a basis for your valuation, you can make a reasonable case on your taxes for depreciating the home.
Capital Improvements
If you make substantial improvements to the home, such as remodeling, you can depreciate that cost along with the home value. Add the cost of the improvements to the value of the home. For example, a house purchased for $150,000 that you remodel for $50,000 would have a $200,000 cost basis you would use for depreciation purposes. Minor repairs do not get depreciated.
link: http://homeguides.sfgate.com/land-value-vs-home-value-46832.html