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    Building Components

    A couple years ago, the IRS new position on capitalization of replaced "building components" were the rage of the seminars. During one of them I saw a list of about 25 items that the IRS considered "components" of a building.

    Has anyone else seen a such a list and can you provide a link?

    #2
    I think you are referring to §1.263(a)-3(e). The "building structure" / "structural components", defined at §1.48-1(e)(2):




    Don't get that mixed up with a "building system" in Regulation 1.263(a)-3(e)

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      #3
      There is a downside ... several, in fact.

      First, it could easily cost $10,000 or more to get a "cost segregation study" done by a qualified engineer.

      Then any components reclassified as §1245 property and depreciated over five to fifteen years would be subject to full depreciation recapture later, unless they were considered to have little or no value when the building was later sold. This would require a second cost segregation study at that time.

      In the event of a §1031 exchange, §1245 recapture doesn't qualify.

      Before recommending to a client that he do this, I suggest you read two or three good articles on the matter. Here are links to a couple:

      EXECUTIVE SUMMARY COST SEGREGATION CAN PROVIDE REAL ESTATE purchasers with tremendous tax benefits from accelerated depreciation deductions and easier write-offs when an asset becomes obsolete, broken or destroyed. CPAs CAN RECOMMEND USING THE cost segregation technique when a taxpayer constructs a building or buys an existing one. It can be

      Increased current cash flows and net-present-value savings from accelerated tax depreciation resulting from cost-segregation studies have been discussed in the JofA and other professional literature. But the initial cost-segregation decision can determine later tax side effects, both positive and negative. This article explores some of the tax benefits and drawbacks


      Other than obvious items such as carpeting, the benefits of cost segregation are pretty minimal in most cases.
      Roland Slugg
      "I do what I can."

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