Maximizing Real Property Depreciation

Call Beucler Company CPA to help you with maximizing your income tax deductions.

Income tax laws can be difficult to understand and are always changing.  Make sure you are maximizing your deductions and that your records are audit proof.

Strategy 1:  Making an initial land-to-building cost allocation.

  • The first step in maximizing depreciation deductions is to make an initial cost allocation between land and building.

  • The allocation should be based on relative FMVs.

  • This initial allocation is critical in that it will establish the amount that may be depreciated.  Any shift from non-depreciable land to building or other depreciable property yields a permanent depreciation increase.

Strategy 2:  Identify land improvement costs.

  • Land improvements are generally depreciated using 150% declining balance over a 15 year recovery period.  This recovery period is less than half that used for nonresidential real property and the method is more rapid than straight-line, so depreciation can be accelerated to the extent costs can be shifted from building to land improvements.  Even better, any land cost that can be allocated to land improvements provides a permanent increase in the amount of depreciation that will be claimed.

Strategy 3:  Analyze building costs using a cost segregation study analysis.

  • After costs have been allocated to land and land improvements, the remaining costs are analyzed to determine whether any can be assigned to assets that are not the building or its structural components.

  • Some components that are typically considered part of the building structure may be tangible personal property in certain circumstances. The more specialized the facility, the more likely some building components should be classified as tangible personal property.

The taxpayer should seek advice
Based on the taxpayer’s particular circumstances
From an independent tax advisor

Beucler Company CPA, Inc.
2503 Summit St.
Columbus, OH  43202
(614) 784-1099

Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.