construction of new building

[Bill Tubbs]

Client built a new commercial building and I'm trying to figure out what pieces I can separate from the building and depreciate faster than 39 years of the building. I understand the paving of the driveway and parking lot qualifies for 15 years. What about:
* clearing/grading of land? If all of it can't be taken over a shorter life, can the portion that's attributable to the driveway and parking lot?
* drilling of the water well (out in the country -- no city water)?
* utility connection (electrical, gas)?
* anything else?

Bill

[Gretel]

I would not try to do this by myself. It appears a cost segregation study is appropriate.

[RJM]

Cost seg study may not be needed

In a past life I was a business appraiser and participated in several cost segregation studies, which were retrospective in nature, and involved a single price for an already existing building. These studies were designed to withstand highly likely audits, and were contingent fee engagements. (These types of engagements helped change some of the AICPA ethics rules on contingent fees).

In my current life as a CPA working with real small businesses, I have many times worked with builders and contractors to provide detailed invoices for my clients' new buildings and large buildouts, so that we could identify on the invoice which building systems and subsystems were easy to segregate and qualify for faster depreciation. The detailed assets were always individually listed and depreciated to help support the case. Although the maximum projects were only in the $1 million range, and the typical around $500,000, I have never had any question form the IRS. In my opinion a cost segregation study is not needed for separately invoiced assets in original construction. The cost seg studies were designed for buying buildings-in-place with all systems already assembled, with only one price for all assets. In that case, you need engineering expertise to segregate all these embedded costs. But not for new construction.

To determine how to classify all the odd items which can be specifically invoiced, there are numerous court cases and loads of detail available, include charts listing asset classifications, allowed lives, and related citations. These are easily found with internet searches. If you study the project in advance of the invoicing, you can clarify with contractors what you want itemized on the invoices.

[Bill Tubbs]

cost segregation

We have all the receipts so can break down the costs. I now believe the well drilling to be a 15-year depreciable item, but would appreciate any insight for the land clearing, utility (gas / electric) connections, and anything else that we maybe could break out.

Bill

[mastertaxguy]

New Building Construction

Realizing how we all want THE quick answer, you may want to take a look at T.C. Memo. 2012-67, Amerisouth XXXIII et al which may cover all your issues.