Q&A: Working with write-offs

Q: Are there faster ways to depreciate a building to take advantage of tax write-offs?

Yes and no, says Bob Chace, CPA, of Chace and Spurgeon P.S. in Longview, Wash. The Internal Revenue Code presents only one period of time for claiming a tax depreciation deduction on a commercial building: 39 years. However, the IRS has approved the use of a cost segregation study to separate the cost of the building from the cost of personal property and land improvements. The segregation doesn't increase the amount of the deduction over the long term, but it does accelerate the deduction in the short term. Personal property is generally depreciated over five or seven years, and land improvements are depreciated over 15 years. So, for example, a cost segregation study might find that your building is 25 percent personal property and 10 percent land-improvement property. You could claim depreciation on those portions at a faster rate than the commercial building portion.

The IRS publishes a cost segregation study audit guide, and some consulting firms specialize in preparing these studies. The study costs money to prepare, so be sure to compare the tax benefits you'll receive with the study preparation fees. A good consultant will provide you with a cost-benefit analysis to make sure it's worth the investment to proceed with the study.