Example of Bonus Depreciation

[Julio Gonzalez]

In my previous post, I talked about the different property classifications to help separate real property from personal property. Identifying your personal property helps you determine the portion of your building that can be expensed immediately under the first year 100% bonus depreciation deduction. I thought it might be helpful to walk through an example.

An investor buys a building for $5,000,000. The value of the land that the building is on is $400,000. Since land does not depreciate, the amount that is subject to depreciation is $4,600,000. Traditionally, the investor would expense the $4,600,000 straight-lined over 39 years. The investor decides to get a cost segregation study to determine the amount of property that is classified as tangible personal property. The results of the study show that $1,000,000 is related to tangible assets, including parking, specialty electrical, finishes, flooring, interior landscaping, etc.

Under the bonus depreciation rules, the investor is able to expense the $1,000,000 of tangible assets immediately. The results of the cost segregation study are considered significant. The study's report also allows the investor to retire and expense structural assets as they are exhausted, which can also lower capital gains when selling the property.

Are you familiar with bonus depreciation?