Q&A Session Regarding Cost Segregation & the Treatment of Property

A computer system used to control the heating, ventilation, and air conditioning system of an office building is classified as:

A structural component of a building with a 39 year recovery period

A project has an electrical panel with 42 circuit breakers, each rated at 20A/1P. Through your detailed analyzes you have identified 28 circuit breakers directly associated with assets deemed to be personal property in nature. What percentage of the panelboard, if any, would you classify as personal property?

66.7 percent of the panelboard

Bulletin F, otherwise known as IRS Publication Number 173, was issued for what purpose?

To provide a useful life guide for various types of property.

Bulletin F

“Many attempts have been made to provide bright-line tests for classifying property by its useful life (or recovery period) due to the frequent controversies that have arisen with the determination of economic life. For example, IRS Publication Number 173 (also known as “Bulletin F”) was published in 1942 and provided a useful life guide for various types of property based on the nature of a taxpayer's business or industry. Bulletin F identified over 5,000 assets used in 57 different industries and activities and described two procedures for computing depreciation for buildings:

Composite Method: A depreciation chart provided a composite rate for buildings, including all installed building equipment. The recommended rates ranged from 1.5% per year for good quality warehouses and grain elevators to 3.5% per year for inexpensive theaters.

Component Method: Taxpayers could elect to depreciate the building equipment separately from the structure itself. A list provided lives for various types of structures, ranging from 50 years for apartments, hotels, and theaters, to 75 years for grain elevators and warehouses. A separate list provided lives for over 100 items of installed building equipment, ranging from 5 to 25 years, or the life of the building.

Regulation § 1.167(a)-7(a) allows taxpayers to either depreciate individual items on a separate basis or to combine assets into group accounts and depreciate the group account as a single asset. Historically, some taxpayers have interpreted this to mean that assets can be segregated into components and depreciated separately.”

The project you are working on is a manufacturing facility with an extensive overhead crane system which is supported by the columns and beams which also supports the structure. How would you estimate the value of the structural steel directly attributable to the crane system?

Use an engineering estimating or valuation manual to determine an overall cost per square foot for the steel used by the crane

A one-line diagram can best be described as:

A diagram of the primary electrical components

Site improvements are generally considered to be 15-year recovery period property. What is the MACRS class for site improvements?


Specific depreciable assets used in all business activities, except as noted

In Whiteco Industries, Inc. v. Commissioner, 65 T.C. 664, 672-673 (1975), the Tax Court established how many questions to ascertain whether a particular asset qualifies as tangible personal property?

6 questions


Engineered Tax Services

Engineered Tax Services

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