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Having climbed back from the lows of the Great Recession, the commercial real estate market has rebounded in recent years; some would say there are signs that top-tier markets are overheating. In response, commercial real estate professionals are beginning to look at older properties with buildings needing significant improvements, if not complete demolition. The return on investment may be worth the risk. But are there tax consequences to consider?
A property’s purchase price is allocated between land and buildings based on their relative fair market values, with sellers and buyers often taking different points of view on how such allocation should be calculated. (See Treasury regulations, sections 1.61-6(a) and 1.167(a)-5.)
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