Business Moving Expenses

[Harvey Lucas]

My client has a machine shop.

In 2011 he moved his shop across town from a building that he was renting, and into a building that he purchased.

It is about 10 miles from old shop to new shop

It cost's about $100,000 to move the machines from old shop to new shop.

Then, it cost about $150,000 more to actually set up the machines in the new shop, ie, they had to have special concrete pads installed, special wiring, and they all had to be recalibrated and tested.

I am thinking that the $100,000 is completely deductible as an ordinary and necesary business expense.

I am thinking that the $150,000 may have to be depreciated.

Any thoughts?

Thank you,
Harvey Lucas

[Kram BergGold]

Leased or owned

Moving expense is a dedcutible expense. The work done on the property if your client owns the building, I would depreciate (you might want to look at componant depreciation) and if he leases then it is leashold improvement.

[Harvey Lucas]

Thanks Kram,

Yes, he owns the new building.

The machines that he uses are all 7 year property.

The installation expenses are all very specific to the machines, ie, heavy concrete footings, special wiring, etc.

I am thinking that the installation expenses that are specific to a particular machine should be 7 year life, same as the machine...What do you you think??

Also I am thinking, that even tho the machine is used, the new installation costs are "NEW"

So I am contemplating using the 100% bonus depreciation on the the "New Installation Costs"

I can't use 179 election because in addition to this moving expense, they also bought about $1,000,000 in other used machines and I am already capped out at $500,000 for 2011 179 election.

Thanks,
Harvey Lucas

[Gretel]

I don't think that the concrete pads would qualify as 7-year property.

[Harvey Lucas]

Thanks Gretel,

Yes I agree, that the concrete pads smell like 39 yr building improvments.

On the other hand they are very specific to the installation of the machines.

The machines are very heavy and require a very stable base that wont flex or move around.

There is no purpose for the concrete pads other than for the installation of the machine.

Becuase of this, I think it is reasonable to argue that the pads are really part of the machine, which they really are, ie, the pads and the machine are bolted together to form a single unit...one cannot operate or be of any use without the other.

Harvey Lucas

[taxea]

Though I see your point I don't think the IRS will buy that the concrete pad is part of the equipment. It is part of the building and necessary to run the equipment. Same would be true had it been put outside the building on the property for the same reason.

[Bees Knees]

TTB page 8-8 says:

Moving machinery and equipment. The cost of moving machinery
from one location to another is deductible, including the cost
of installing the machinery in its new location. However, the cost
of moving and installing newly purchased machinery is added to
the cost of the machinery for depreciation purposes.

The cost of installing the machinery in its new location is deductible (rather than depreciated) because it is not a new asset apart from the machinery itself. It has no useful purpose or life on its own.

If the improvement benefits the building with a useful purpose other than the machinery, then that would be different. Does the concrete pad, wiring, etc. somehow improve the building without the machinery, or are the improvements only necessary for the machinery to function?

Note what is also said on page 9-9 of TTB:

In one case, a raised floor that was constructed to permit wiring and
duct work was deemed not to be a structural component of a building,
but more closely related to a computer installation. The asset
was therefore determined to be personal property, and the cost was
allowed to be recovered along with the cost of the computer over five
years (Chief Counsel Advice 200033002).

This was a cost segregation issue concerning the purchase of a new computer that needed special installation. Had it been a situation where the computer was already placed in service and was merely being moved from one location to another, the cost of the raised floor and wiring would have been deductible as moving costs.

[Gretel]

Note what is also said on page 9-9 of TTB:

This was a cost segregation issue concerning the purchase of a new computer that needed special installation. Had it been a situation where the computer was already placed in service and was merely being moved from one location to another, the cost of the raised floor and wiring would have been deductible as moving costs.

Bees, are you sure that this can be used outside a cost segregation? Two years ago I was involved in a extensive cost segregation study (as a bookkeeper not tax return preparer)
and a major part of taking the deduction was closely related to having the cost seg report.

I would not easily take this deduction / treat it a personal property. It's facts and circumstances and I would agree with OP that the pads are not related to the building.

[Harvey Lucas]

Thanks Bees, thanks everyone.

Very helpful, as usuall !!!

Harvey Lucas