Building Components

[Snaggletooth]

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?

[TaxGuyBill]

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

http://www.law.cornell.edu/cfr/text/26/1.48-1#e_2

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

http://www.ecfr.gov/cgi-bin/text-idx?SID=26dcc841294cddefb2370a74b0b4d67b&node=se26.3.1_1263_2a_3_63&rgn=div8

[Roland Slugg]

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:

http://www.journalofaccountancy.com/Issues/2004/Aug/CostSegregationApplied.htm

http://www.journalofaccountancy.com/Issues/2012/Apr/20114805.htm

Other than obvious items such as carpeting, the benefits of cost segregation are pretty minimal in most cases.