Hello everyone, I was talking with a lady yesterday who’s business bought a new warehouse. I was asking for the cost of the land, building. Then I asked what was inside the building when you purchased it. Maybe I said it wrong or maybe it is that people do not understand depreciation.
So today I want to explain why you want to separate the building from the carpet, furniture, computers and other equipment.
When we depreciate a property we use a formula to figure out how long the item will last. In the case of a building, the IRS tells us to use 27.5 years for residential rental property and 39 years for a commercial building.
Desks and fax machines for example is 7 years while carpeting, furniture and computers is 5 years.
If you purchase a commercial property for say $100,000 and you depreciate the whole thing all together it will take 39 years before you have taken the value of the carpet off your taxes. By then the carpet has or should have been replaced. Why not depreciate the carpet by 7 years instead of 39. The technical term for this is “cost segregation” and it is legal for you to do this.
If you want to lower your taxes give us a listing of what is in the property that was include in the purchase price, so we can get you the most deduction.
I have prepared a list for your use. You will find it Here.