Definition: A land improvement is any type of alteration to the land to make it more usable. Improvements have a limited life and can be depreciated unlike land.
What Does Land Improvement Mean?
When a company buys a building, the building is usually depreciated of its useful life. The land that is purchased with the building, however, does not get depreciated. Why, you might ask? The land has an infinite life. It’s not like the building that will deteriorate over time. Land can’t be destroyed and can never be used up.
Land improvements are completely separate from the land itself. That is why land improvements are considered a completely different asset than land. The money spent on improving land does not get added to the original cost of the land. Instead, it gets treated as a completely separate asset purchase and is depreciated over its useful life just like other fixed assets.
Take a parking lot for example. After the land is purchased, it must be leveled and graded for drainage. Concrete or blacktop can then be poured over the dirt and line can be painted for parking spots. Like all land improvements, a parking lot has a limited life.
A parking lot will only last a few years before it will need to be resurfaced or repainted. It also makes the land more useful. Land improvements can also include landscaping, sprinkling systems, lighting systems, and much more.