Are faster write-offs for business buildings possible?
Tax Tip of the Week
April 22, 2019
Are faster write-offs for business buildings possible?
Generally, it takes nearly four decades to fully depreciate the cost of a business building. That's a long time in most people's book. But you may be able to recoup the cost of certain components faster with a cost segregation study prepared by an expert.
How tangible personal property can accelerate deductions
Based on the main tax system for depreciation deductions — the Modified Accelerated Cost Recovery System (MACRS) — the usual write-off period for business real estate is 39 years. In contrast, MACRS allows you to write off "tangible personal property" over shorter spans like five, seven or 15 years. For instance, the MACRS period for computers is only five years.
Fortunately, you may not be necessarily stuck with the lengthy 39-year period for the entire building. Cost segregation studies can help taxpayers identify certain building components to be treated like tangible personal property so they can recover their costs over shorter depreciation periods. For example, a restaurant might accelerate hundreds of thousands of dollars in write-offs on a $5 million property.
What sort of components can be identified in a cost segregation study? The list includes, but isn't necessarily limited to, the following:
-
Electrical installations
-
Plumbing
-
Mechanical components
-
Removable carpeting and partitions
-
Finishes
Finally, you might be able to accelerate expenses even more by using Section 179 expensing ($1,020,000 for 2019) and 100-percent bonus depreciation for qualified assets. Therefore, a cost segregation study may provide even greater benefits.
But be careful, the IRS has a long history of challenging accelerated deductions. Thankfully, the Audit Techniques guides the IRS agents use for guidance are also available to the public to provide insight into cost segregation choices likely to be accepted.
Call today with questions regarding your situation.
"Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
© MC 2018
April 22, 2019
Are faster write-offs for business buildings possible?
Generally, it takes nearly four decades to fully depreciate the cost of a business building. That's a long time in most people's book. But you may be able to recoup the cost of certain components faster with a cost segregation study prepared by an expert.
How tangible personal property can accelerate deductions
Based on the main tax system for depreciation deductions — the Modified Accelerated Cost Recovery System (MACRS) — the usual write-off period for business real estate is 39 years. In contrast, MACRS allows you to write off "tangible personal property" over shorter spans like five, seven or 15 years. For instance, the MACRS period for computers is only five years.
Fortunately, you may not be necessarily stuck with the lengthy 39-year period for the entire building. Cost segregation studies can help taxpayers identify certain building components to be treated like tangible personal property so they can recover their costs over shorter depreciation periods. For example, a restaurant might accelerate hundreds of thousands of dollars in write-offs on a $5 million property.
What sort of components can be identified in a cost segregation study? The list includes, but isn't necessarily limited to, the following:
-
Electrical installations
-
Plumbing
-
Mechanical components
-
Removable carpeting and partitions
-
Finishes
Finally, you might be able to accelerate expenses even more by using Section 179 expensing ($1,020,000 for 2019) and 100-percent bonus depreciation for qualified assets. Therefore, a cost segregation study may provide even greater benefits.
But be careful, the IRS has a long history of challenging accelerated deductions. Thankfully, the Audit Techniques guides the IRS agents use for guidance are also available to the public to provide insight into cost segregation choices likely to be accepted.
Call today with questions regarding your situation.
"Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
