Are you planning to construct a new building or start a major building remodel?  If so, there are several items that you should discuss with your contractor prior to beginning the project.  By discussing these issues with your contractor, you may be able to write-off your building costs quicker and lower your tax liability.

The following is a list of items that typically can be broken out and depreciated at an accelerated rate:

1)     Carpet and vinyl flooring (tile doesn’t qualify because of the permanent adhesive);

2)     Cabinets;

3)     Decorative light fixtures (Ex. lighting not necessary for the operation of the building);

4)     Land improvements (Ex. sidewalks, parking lot, sewer, landscaping, sprinkler systems and light poles);

5)     Decorative woodwork (Ex. crown molding and lattice work);

6)     Indoor and outdoor signage;

7)     Special electrical connections which are necessary to and used directly with a specific item of machinery or equipment;

8)     Awnings and canopies;

9)     Plumbing related to specific equipment (Ex. dishwasher hookups).

Your contractor should provide you with a report called “Application and Certificate For Payment”.  This report includes categories like electrical, plumbing, carpentry and concrete. Without communication in advance, most of the items listed above would be lumped together into general categories. It is difficult and time consuming for the contractor to go back after the fact to break out the specific items listed above.

We recommend that you sit down with your contractor before the project begins and go over this list with them so they can modify their reporting and list these items separately.

If additional analysis is needed, The Whitlock Company can perform a cost segregation study.  Cost segregation studies generate substantial tax benefits through acceleration of depreciation deductions for new construction and remodeling.  On average, cost segregation studies can break out between 20-30% percent of the building to personal property which allows accelerated depreciation. If you think you could benefit from this service, please contact Jennifer Cochran or you client administrator.

written by Jennifer Cochran, CPA, Supervisor