Farm businesses that acquired constructed or made substantial improvements to a building — or did so in previous years — should consider a cost segregation study. Also referred to as a “Cost Seg,” these studies combine accounting and engineering techniques to identify building costs that are properly allocable to tangible personal property rather than real property. This may allow you to accelerate depreciation deductions, which can mean reduced taxes and increased cash flow.
IRS rules generally allow you to depreciate farm buildings, such as equipment sheds and barns over 20 years. Most times, you’ll depreciate a building’s structural components — such as walls, windows, HVAC systems, plumbing and wiring — along with the building. Personal property — such as equipment, machinery and furniture are eligible for accelerated depreciation, usually over five or seven years. And land improvements such as fences, outdoor lighting and parking lots are depreciable over 15 years.
Many times farmers allocate all or most of a building’s acquisition or construction costs to real property, overlooking opportunities to allocate costs to shorter-lived personal property or land improvements.… Continue reading