A Gift Horse

Remember in the early 80’s when Congress passed very favorable tax laws for real estate like shorter depreciation schedules for commercial real restate structures? The commercial real estate market took off and everyone wanted to invest and take advantage of the favorable treatment allowed. The commercial real estate market was booming!


Then Congress, in its infinite wisdom, decided those benefits were too good and they needed to tweak them. So in 1986 all the depreciation schedules were lengthened to discourage investment solely for favorable tax treatment. Things stayed that way until 1997 when Congress revised the tax code and a little publicized provision was added and became part of the “Taxpayer Relief Act of 1997.” The provision designated the location of special American Indian Lands in Oklahoma that qualify to receive special tax treatment. Over two-thirds of the land in Oklahoma qualifies for the accelerated depreciation allowed (see map below). Although an investor can enjoy favorable treatment in this geographic area there is no difference in the type of ownership you can have. Ownership can still be in “fee simple.”

That applicable depreciation schedule is:

  • Standard 3-year depreciation Indian Land 2-year
  • Standard 5-year depreciation Indian Land 3-year
  • Standard 7-year depreciation Indian Land 4-year
  • Standard 10-year depreciation Indian Land 6-year
  • Standard 15-year depreciation Indian Land 9-year
  • Standard 20-year depreciation Indian Land 12-year
  • Standard 39-year depreciation Indian Land 22-year

As an example:

  • A Walgreen store in other areas would be subject to the normal 39-year deprecation schedule, but in the “designated lands” it would receive a 22-year depreciation schedule.

    Say the value is $4,000,000 with 75% or $3,000,000 being improvement value.

    Standard depreciation schedule of 39 years would allow $76,923 write off per year.

    Indian Land depreciation schedule of 22 years would allow $136,364 write off per year.

Another Example:

  • A Convenience Store with a value of $2,500,000 with 75% or $1,875,000 being improvement value:

    Standard depreciation schedule of 15 years would allow $125,000 write off per year.

    Indian Land depreciation schedule of 9 years would allow $208,333 write off per year.

    The depreciation schedule is a straight-line schedule so there is no accelerated depreciation recapture upon sale of the property. The law provided for the window to close for these benefits on December 31, 2003. That provision has been extended until December 31, 2004.

Looking for an edge in your investment portfolio? Try Oklahoma Indian Land!

Comments are closed.