Section 1245 and 1250

[Snaggletooth]

All of us should know that 1250 is for real estate and 1245 for equipment and other items.

But what about items in the "grey area?" I recently saw a building appraisal that included $180,000 for an overhead crane. The same question might involve a $20,000 HVAC system or a $15,000 vault door for a bank. Greedy taxing authorities often overlap these items, meaning the real estate assessment may include these items, and the personal property tax may do so as well. I've known this to happen even in the same municipality.

I have been depreciating the crane over 7 years with double-declining balance, and the building over 39 years. The crane is 5 yrs old and has a substantial difference between the accelerated 200% depreciation and the SL method.

If the facility is sold, and the crane qualifies as s.1250 property, then there is an amount considered to be "excess" depreciation. How does this stack up with IRS expecting all real estate to be straight-line since 1987?

Some of you may consider the crane to be s.1245 because we have not depreciated over 39 years. Others may consider it to be s.1250 because the real estate tax assessment includes the crane. Would like to hear from as many of you as will comment.

Thanks, Snag

[outwest]

Rules don't always overlap..

To me it's like the occasional discussion about the "that used mobile home won't last 27.5 years!" Doesn't matter what the real life is, if it fits the definition, it's residential rental and that is the class life.

In the larger picture, each variation on taxation has it's own method of calculation, definitions of tax base, and timing. There is no requirement that they harmonize, nor should we try to force it. If fact, I could imagine a situation where your crane could be taxed as both personal property and real estate by two different agencies taxing under two different statutes. (Patently unfair but possible)

Sometimes, there seems to be a discussion about such things as where to book AAA. It's the same issue in different clothing where GAAP is designed to report financial results but tax accounting rules are arbitrarily imposed to calculate taxes. They share some similarities but they are different methods of presenting financial information for different purposes.

So for your crane, if it fits the 1245 definition in the code, then it is 1245. (some professional judgment and research may be required as not all will be black and white) The assessor's definition is an interesting piece of trivia to me, but no more.

[solomon]

§1.48-1(e)(2) is used to determine a structural component.

[Davc]

How does this stack up with IRS expecting all real estate to be straight-line since 1987?

Land improvements can be 1250 property depreciated using 150DB.

[BOB W]

Component Depreciation is an allowed method but I think it needs to be valuated by a specialist. Not everything within a building need to get the streched years if done right.

[Davc]

Component Depreciation is an allowed method but I think it needs to be valuated by a specialist. Not everything within a building need to get the streched years if done right.

And keep in mind that the people that want to do that are the same people that want to do 1031 exchanges and component depreciation can really complicate that endeavor.

[David1980]

There is an IRS audit techniques guide on Cost Segregation, where a property is broken into some components that can be separated out (I would imagine, like a crane) and then depreciated using shorter accelerated methods. That would probably help with the question of how the IRS treats it.

See http://www.irs.gov/businesses/articl...134180,00.html