When you undertake demolition or renovate a building to tear out lighting, HVAC units, and other components, they are abandoned or retired from the building. As such, their book value can be treated as a business deduction. The tangible personal property within the structure (or a part of it) allows for the remaining depreciable value (or basis) to be written off when the asset is retired, provided the personal property is no longer in service and was not purchased with the intent to demolish. This must be identified and valued prior to demolition.
When you re-light a building, you create both an opportunity for the Energy Tax Deductions and a real estate asset disposition study. Excess lighting (eliminated with the new energy-efficient system) can be depreciated faster than the typical 39 years; therefore, you maximize your tax strategies and save money.
Recent changes to tax regulations allows for the disposition of individual building components, while previously the IRS viewed a building as a single unit of property (UOP). The new regulations as issued in IRS Code 1.168(i)-8 allows a property owner to dispose of a smaller UOP provided that a detailed cost segregation report has properly broken down individualized UOP within the larger unit. The IRS now required property owners to depreciate 9 separate units of property within their real property:
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Study Details – Medical Facility Purchase: Engineered Tax Services performed a cost segregation engineering review of building components on a one-story, 15,838 square foot medical office building. The cost segregation benefit included a reclassification of 27.5-year depreciation class life assets into 5 and 15 year class lives, resulting in a combined benefit of $1,622,280 on the
Study Details – Hotel Purchase & Improvements: Engineered Tax Services performed a cost segregation engineering review of building components and site improvements on a 3-story 50,000 sq. ft. hotel in Florida. The cost segregation benefit included a reclassification of 39-year depreciation class life assets into 5 and 15 year class lives, resulting in a combined
By applying cost segregation, property owners accelerate depreciation, reduce tax liability and increase their bottom line. This aids in future benefits via abandonment, repairs, routine maintenance and overall asset management. ETS performs hundreds of cost segregation studies on a monthly basis for property owners, providing a detailed engineering review of assets including special purpose mechanical