Tax Article - Cost Segregation 

Property can be classified as either five or seven-year personal property, 15-year land improvements, or 39-year real property under MACRS. Under MACRS, significant tax benefits are gained by identifying property that would normally be classified as real property and depreciated on a straight line basis over 39 years and reclassifying it as either five or seven-year property, depreciated under the 200 percent double declining balance method or 15-year property, depreciated under the 150 percent double declining balance method. 

The Tax Court has ruled that elements of a building that are treated as personal property under the former investment tax credit rules may be separately depreciated under MACRS and ACRS as personal property. The IRS has acquiesced to the court's holding that the former investment tax credit rules apply in determining whether an item is a structural component (i.e., real property) or personal property.

The determination of whether an item is personal property or a structural component will often depend upon the specific facts. However, the following items, if related to the operation and maintenance of a building, are examples of structural components: bathtubs, boilers, ceilings (including acoustical ceilings), central air conditioning and heating systems, chimneys, doors, electrical and wiring, fire escapes, floors, hot water heaters, HVAC units, lighting fixtures, paneling, partitions (if not readily removable), plumbing, roofs, sinks, sprinkler systems, stairs, tiling, walls, and windows. These items should still be broken out in a cost segregation study in case the item has to be replaced and written off before the end of the 39 year life.

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