Discussion:Cost Segregation - Land Improvements

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Discussion Forum Index --> Basic Tax Questions --> Cost Segregation - Land Improvements

Discussion Forum Index --> Tax Questions --> Cost Segregation - Land Improvements

Jimmer (talk|edits) said:

26 March 2010
$2.5M Commercial build job - Commercial developer. Between Excavation, Paving/Striping the parking lot, Landscaping, sidewalks, etc, they've got about $700K of Land Improvements.

I think it's pretty clear these fall under the 15 year Land Improvement asset class.

In this situation, this depreciation is adding to an individual NOL, and it's compounded by the ability to take bonus depreciation. I've seen work by other CPAs where they classify the entire development as 39 year property (land excepted), but I believe that's incorrect treatment.

That said, I'm just a little skittish that this could come back to bite a struggling developer, if the IRS were to come back and reclassify the property as 39 year property.

I'm tempted to mitigate audit risk by electing out of bonus depreciation, but I think that would be a disservice as they are entitled to the 15 year treatment.


UpstateCPA (talk|edits) said:

26 March 2010
Many CPA's do an informal cost segregation but to really support the classification you should have a formal cost segregation study done. In addition to the 15 year land improvements eligible for bonus, there are probably other elements of the structure that could be classified as 5 or 7 year property. The primary resource for cost segregation besides the various court cases (HCA, WhiteCo etc.) is the IRS cost segregation audit manual.

RoyDaleOne (talk|edits) said:

26 March 2010
Cost segregation has been required forever, not just lately. Because the project is new construction and you have actual cost records therefore is no need for a cost segregation study to determine the costs you have.

RoyDaleOne (talk|edits) said:

26 March 2010
Some of the items you list may or may not be depreciation. I suggest CCH Master Depreciation Guide.

Actually, most of the item probably are depreciable.

CATaxAtty (talk|edits) said:

27 March 2010
This has actually been a hot issue recently.

A parking 'lot' is just a land improvement, with a 15 year life. See - http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/A-Brief-Overview-of-Depreciation ("General land improvements, such as parking lots...")

However, a parking 'structure' is a building, with a 39 year life. See - http://www.irs.gov/Businesses/Coordinated-Issue---All-Industries---The-Applicable-Recovery-Period-Under-I.R.S.-§-168-(a)-for-Open-Air-Parking-Structures

Check that link, a taxpayer recently got hammered on this issue. Negligence penalty upheld.

RoyDaleOne (talk|edits) said:

27 March 2010
Parking Lot A, located outside the plant facility and used by employees at the plant, was classified in asset class 49.13, because that asset class specifically includes land improvements that are related to assets used in the production of electricity from steam. Although asset class 00.3, Land Improvements, also includes parking lots, it specifically excludes land improvements that are explicitly included in any other asset class.

Parking Lot B, located 100 miles away from the plant and adjacent to the corporate headquarters, was classified in asset class 00.3. This parking lot was used by employees at the headquarters office and was not related to the activity of producing the electricity. Therefore, it did not constitute a land improvement related to assets used in the production of electricity from steam and the proper classification was in the asset category, rather than the activity category.

To add to the confusion.

UpstateCPA (talk|edits) said:

28 March 2010
I didn't say that it was required "lately." Clearly the parking lot is easy enough to segregate from the rest of the construction based on the detail provided by the contractor. I was just pointing out that depending on the what is in the actual building there might be more there than just the land improvements that could be reclassified. In my experience the contractor invoices don't always provide enough detail to break everything out.

Jimmer (talk|edits) said:

30 March 2010
Thanks Roy. Good discussion all. Very helpful. I've got a fair enough comfort level with the contractor breakout to depreciate the land improvements.

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