| Typically Building costs are generally classified for | | | | years. The tax benefits begin in the first tax year |
| federal income tax purposes into three categories. | | | | and continue throughout the depreciable life of the |
| Each has a different depreciation recovery period and | | | | identified assets. |
| method under the Modified Accelerated Cost | | | | For example, a taxpayer that owns a manufacturing |
| Recovery System ("MACRS"): | | | | facility could classify the cost of certain equipment |
| TANGIBLE PERSONAL PROPERTY | | | | foundations, exhaust and ventilation systems, and |
| Depreciates Over 5 OR 7 YEARS | | | | electrical distribution as tangible personal property. |
| At a 200% Declining Balance | | | | Certain site improvements such as landscaping, |
| LAND IMPROVEMENTS | | | | underground utilities, and site lighting could qualify as |
| Depreciate Over 15 YEARS | | | | land improvements. |
| At a 150% Declining Balance | | | | Knowing the difference is critical. So is the ability to |
| RESIDENTIAL RENTAL - REAL PROPERTY | | | | support and document the decisions. That is why you |
| Depreciates Over 27.5 YEARS | | | | need expert advice. Identifying items to be |
| Straight Line (Residential) | | | | reclassified is only half the battle. The other half is to |
| COMMERCIAL - REAL PROPERTY | | | | determine the costs legitimately associated with each |
| Depreciates Over 39 YEARS | | | | item. The complication is locating single-item costs. For |
| Straight Line (Commercial) | | | | example, suppose you know that a portion of your |
| In most cases, when a property is placed in service, | | | | facility's electrical distribution for specific |
| the straight line method is used. In some cases, the | | | | manufacturing equipment should be in the shorter-life |
| obvious short life items are separated out and the | | | | category. You look at the contractor's charges under |
| remainder depreciates over the long term straight line | | | | electrical and find that all the electrical costs for the |
| method. | | | | job are bundled into a single number, but you need |
| By reclassifying components from 39 year real | | | | only the cost associated with electrical distribution |
| property (subject to straight line) to five or seven | | | | serving manufacturing equipment. |
| year personal property (qualifying for 200% Declining | | | | Our cost segregation specialists can un-bundle the |
| Balance), the recovery period is greatly compressed. | | | | costs and assign them appropriately - not only the |
| In addition to the reduction in the recovery period, all | | | | direct costs, but also a portion of any indirect costs, |
| five and seven year property is depreciated at a | | | | such as architect and engineering fees, contractors |
| 200% declining balance which further accelerates the | | | | general conditions, permits, bonds, etc. We have |
| depreciation. This provides the building owner the | | | | extensive knowledge of construction methods, |
| ability to greatly increase the depreciation for a | | | | engineering, and the Internal Revenue Code including |
| property and thus significantly reduces the building | | | | the applicable Tax Court cases and Revenue Rulings. |
| owners taxable income and current income tax | | | | Our expertise is the ability to read blue prints and |
| liabilities. | | | | fully understand construction materials, cost, and |
| Our Engineering Based Cost Segregation Study will | | | | taxation. We are consultants that bridge the gap |
| help identify items that should be properly classified | | | | between your accountants and the construction |
| as tangible personal property or land improvements, | | | | team. |
| rather than real property that is depreciated over 39 | | | | |