The Waters are Rising! Why Isn't My Tax Basis Sinking? Why Coastal Land Should be a Depreciable Asset in Light of Global Warming and the Rise in Sea Level
Depreciation deductions are the Internal Revenue Code's method of allowing taxpayers to take deductions on long-term investments. Unlike normal deductions, depreciation requires the taxpayer to apportion the expense over the life of the asset. While most assets used for the production of income may be depreciated, the Internal Revenue Service and courts have never allowed land to be depreciated. The treatment of land as a non-depreciable asset is deeply rooted in the idea that it does not have a useful life -- it lasts forever. However, global temperature has risen rapidly over the past fifty years and is expected to grow even faster in the future. This causes ice caps to melt and oceans to expand, which leads to a rise in sea level. The rise in sea level means that many coastal property owners will see a decrease in their property size as the sea inundates the dry land. This is because the public trust doctrine converts navigable waters into public property. As such, coastal property is now a wasting asset because private lands are becoming public once they are underwater. This note argues that in light of global warming, coastal property should be a depreciable asset. By looking at existing tax doctrine and drawing comparisons to other types of depreciable property, this note explains why coastal property should be depreciable and how this change could be implemented under existing tax policy. Finally, this note argues that even if coastal property is not depreciable, coastal property owners should, in the alternative, be allowed to take depletion deductions.