Commercial Building Components

[ksf]

I have an LLC (single member) who built a $1 million dollar building that is leased to his C corporation (for which he is the sole owner) - it's an Induatrial Testing Co. There a triple net lease signed.

My questions are:

Can the components of the Building such as HVCA, electrical, and plumbing, be depreciated as equipment since most the the cost was to accomodated for the leasee walkin testing chambers, and other chambers with out haveing to have a independent company do a cost segregation report?

Also, I think congress passed in Jan 2013 new rules regarding triple net lease deductions. Does any one know what the changes are or where I can find information?

Thanks for taking your time to help me.

KSf

[Traveling EA]

Components

There are those whose sole business is doing a study on the building to break down the various components of a building. It is called cost segregation. On a $1 million building it would probably be worthwhile to hire a company to do this. It is a niche specialty and the people who work in this companies stand behind their cost seg studies that they do.

[Roland Slugg]

A leading case on the issue of cost segregation of a commercial building is Hospital Corp. of America & Subsidiaries, (1997) 109 TC 21. In this case the IRS's hard-line stance against cost segregation was weakened slightly by the tax court which ruled in the taxpayer's favor on certain limited issues. The IRS acquiesced to parts of the court's decision but nonacquiesced to others. (Acq and nonacq 1999-35, IRB 314, as corrected by Ann. 99-116, 1999-52, IRB 763.)

In recent years IRS has bought into the concept of clearly documented cost segregation studies to identify §1245 assets in buildings. Anyone considering doing this, however, would be well advised to read the Hospital Corp. of America case along with any other information available regarding recent IRS announcements or guidelines on the subject.