If you’re thinking about acquiring real estate for your business, there are several built-in ways to get tax deductions from depreciation. Here are a few strategies to consider to get the most out your deductions.

If you’re thinking about acquiring real estate for your business, there are several built-in ways to get tax deductions from depreciation. Here are a few strategies to consider to get the most out your deductions.

Separate Improvements from Land

One common misconception is that the land itself is depreciable. In actuality, it’s the improvements to the land that are depreciable. That is why it is so important to document in a thorough analysis any improvements you make to the property.

You can make this analysis either through a qualified real estate appraiser or through your own documentation. You may do it yourself only if you have enough expertise to do the valuation. In either case, we recommend bringing in your accountant to make sure the valuation is consistent with the state and federal tax laws.

Turn Land Into a Deductible Asset

Yes, technically, the land is not depreciable. However, with certain methods you can receive a tax benefit that is similar. For example, you may:

Separate Personal Property from Buildings

The government draws a big distinction between the depreciation of a building and the depreciation of personal property. In general the depreciation of a building must take place over a period of 39 years, with an exception of residential properties at about 27.5 years. But personal property can be deducted over considerably shorter periods, and new personal property can be written off up to 50% in the first year, for up to $500,000 in write-offs for qualified taxpayers.

Though the distinctions between personal property and building property is usually obvious, there are specific rules in the realm of tax law which determines which is which. Sometimes consultation with engineers, construction experts, and/or a tax specialist may be needed. Once you separate what is personal property and what is building property, you will need to make separate appraisals of each.

Need More Help With Depreciation Deductions?

The tax rules around depreciation deductions are very specific, and require a thorough assessment of your situation. It’s wise to seek professional guidance. PDM’s tax experts can help advise you on the best course of action. Contact us; with our years of technical experience, advanced training, and cutting edge technology, we are your financial partner.