Discussion:Depreciating rental componenets less than 27.5 years?
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Discussion Forum Index --> Tax Questions --> Depreciating rental componenets less than 27.5 years?
Scottycoyote (talk|edits) said: | 21 February 2008 |
| i remember a ncpe seminar not that long ago where depreciation breakdowns were done. For example, a building was purchased and all the electrical in the building was depr'd for like 7 years, the fixtures for 10, etc etc. I was wondering if this method has spilled over for replacements as well, i have a client who put a new electrical service in a rental house at a cost of several thousand.....normally i would depr it over the life of the rental (27.5), because i view it as an integral component of the real property. Anybody doing it substantially different? Cases or code to back it up would be nice too. | |
Death&Taxes (talk|edits) said: | 21 February 2008 |
| I think Wayne and Jerry were referring to Hospital Corp of America, a case which is the basis for all cost segregation studies. Do a search here for Roof replacement and you might find another case like Thomas J. Northen, Jr. et ux vs Comm, TC Summary Opinion 2003-113. | |
RoyDaleOne (talk|edits) said: | 21 February 2008 |
| I look at an IRS "publication" and it suggested that taxpayers must follow the HCA case. I could see how the IRS see this as money maker on the sale of the property. HCA covers the non-structural components of a building. | |
| 21 February 2008 | |
| I don't remember the details, but there is an IRS publication that deal specifically with component depreciation for casinos. It gives useful life, etc for essentially everything. If I find it I'll post a link. | |
Taxstudent (talk|edits) said: | 22 February 2008 |
| Hospital Corp is not the basis for all cost segregation studies. Walgreens provides another basis, though more limited in scope. Residential rentals, though it is rarely remarked upon, cannot rely on Hospital Corp. Unlike nonresidential real property, the definition of residential rental property is not directly linked to the definition of section 1250 property. Instead it is linked to the more nebulous concept of a building. Presumably, that "building" is the same as the term of art "building" under the ITC, which raises the possibility of the Service disallowing short-life treatment certain kinds of section 1245 property found on residential rental property, particularly in the 4th and 7th circuits. This is an even better moneymaker: you get slow depreciation and they get full recapture. Of course, I've never seen them actually attempt this, but who can tell what tomorrow will bring? | |
Scottycoyote (talk|edits) said: | 22 February 2008 |
| excellent imput as always thanks guys | |
RoyDaleOne (talk|edits) said: | 22 February 2008 |
| Well, tax student the recapture on Section 1245 is what type of income?
The current trend for disposition of rental property is about 7 to 10 years. I agree that the concept of residential rentals definitions I have seen is not the same as "owned" nonresidential property, however, is the definition for residential rental property different from commerical rental property? Other than class life. In addition, just my comment, the IRS is supposed to adhere to the law as well as taxpayers. Therefor, if, HCA and Walgreens is the law of the land, the IRS should comply. | |
RoyDaleOne (talk|edits) said: | 22 February 2008 |
| List of court cases:
http://www.irs.gov/businesses/article/0,,id=134671,00.html Audit Guide http://www.irs.gov/businesses/article/0,,id=134180,00.html The HCA ruling effectively reinstated a form of component depreciation for certain building support systems, such as the electrical and plumbing systems that directly serve tangible personal property. Therefore, cost segregation methodologies previously used to allocate the cost of a building between structural components and ITC property can now be used for § 1245 and § 1250 property. Section 1250(c) defines "section 1250 property" as any real property, other than section 1245 property, which is or has been subject to an allowance for depreciation. In other words, § 1250 property encompasses all depreciable property that is not § 1245 property. http://www.cpa-resource.com/glossary/Cost_Segregation_Study/ | |
RoyDaleOne (talk|edits) said: | 22 February 2008 |
| Should have noted that the "quote" in the above post ..."The HCA" was from the IRS web site. | |
Death&Taxes (talk|edits) said: | 22 February 2008 |
| Slow depreciation, but brutal recapture was the old trap under ACRS for commercial property; it was 1245 on sale. From another discussion here, there are still plenty of these building out there. Discussion: Depreciation recapture on 15 year commercial building (ACRS, 3-1-84)
Perhaps the Northen case is misapplied here, where the discussion is about depreciable life, rather than repair versus capitalize. | |
