What is Land?

Land is real estate that is exclusive of any buildings or other assets situated on the property. Depending on the terms of a land ownership agreement, the owner may be awarded the right to use all natural resources on and under the land, which may include water rights, fishing rights, mining rights, and so forth.

Types of Land

There are several general classification of land, of which the most common are as follows:

Residential land. Residential land is designated for housing and related structures, including single-family homes, apartments, and condominiums. It is typically located within urban or suburban zoning areas and is often subject to specific building codes and neighborhood regulations. This type of land may include amenities like driveways, gardens, and access to public utilities. Demand for residential land is influenced by population growth, urbanization, and local real estate markets.
Commercial land. Commercial land is used for business activities, such as retail stores, office buildings, restaurants, and service centers. It is usually situated in areas with high traffic and visibility to attract customers. Zoning laws regulate how commercial land can be developed and often require access to infrastructure like roads, parking, and utilities. This land type is crucial for economic development and revenue generation.
Agricultural land. Agricultural land is used for farming activities, including growing crops and raising livestock. It may include fields, pastures, orchards, and water sources essential for sustaining agricultural operations. The productivity and value of agricultural land depend on soil quality, climate, and access to irrigation. This type of land often benefits from special tax treatments or conservation programs to support food production.
Industrial land. Industrial land is set aside for manufacturing, warehousing, logistics, and related industrial operations. It is usually located near transportation hubs like highways, railways, or ports for easy distribution. The land must meet environmental and safety standards due to the nature of industrial activities. These properties often include large buildings, loading docks, and utility infrastructure to support heavy machinery and production.
Recreational land. Recreational land is used for leisure and entertainment purposes, such as parks, golf courses, campgrounds, and nature reserves. It is usually preserved in a more natural state and may be publicly or privately owned. This land enhances community well-being, tourism, and conservation efforts. Regulations often restrict development to preserve the environment and maintain public access.

Accounting for Land

Land assets are classified within a separate fixed asset account. Land is the only asset that is not depreciated for financial reporting or tax purposes. This can result in the improper shifting of real estate costs away from the land portion of an acquisition in order to maximize the amount of depreciation that the new owner can claim as a tax deduction. The basic journal entry for the recordation of land (using a sample amount) is as follows:

When land is sold, it generates a capital gain or loss for the owner. A capital gain arises when the land is sold for more than its acquisition cost, while there is a loss if the sale price is lower than the acquisition cost.