Understanding Equipment vs. Building Depreciation
Industrial properties often contain equipment that blurs the line between personal property and building improvements. Production machinery, process systems, and specialized infrastructure may be attached to buildings yet serve operational rather than building functions. Proper classification determines applicable depreciation periods.
Equipment depreciation typically follows shorter recovery periods than building improvements. Most industrial equipment qualifies for 5-year or 7-year depreciation, while building components depreciate over 39 years. The classification decision significantly impacts tax benefits.
Building-integrated equipment requires careful analysis. Cranes, hoists, and material handling systems attached to building structure may still qualify as equipment rather than building improvements depending on their nature and removability.
Utility systems serving equipment present classification questions. Electrical distribution, compressed air, and process piping may be classified with the equipment they serve or as building infrastructure depending on specifics. Analysis determines appropriate treatment.
Categories of Specialized Industrial Equipment
Production machinery and processing equipment typically qualify for industry-specific depreciation periods. Asset class lives vary by industry, and understanding applicable classifications ensures proper treatment.
Material handling equipment including cranes, hoists, conveyors, and lifts may qualify for equipment treatment even when attached to building structure. The degree of attachment and removability affect classification.
Process systems encompassing specialized HVAC, compressed air, and environmental controls may be classified with production equipment when they directly serve manufacturing processes rather than building occupancy.
Power and utility equipment including transformers, generators, and distribution systems warrant analysis. Equipment serving production may qualify for shorter periods than building electrical systems serving general facility needs.
Coordinating Equipment and Building Studies
Cost segregation studies typically focus on real property while equipment depreciation may be addressed separately. Coordinating these analyses ensures comprehensive treatment without gaps or overlaps in classification.
Documentation should support the distinction between equipment and building improvements. Engineering analysis explaining why specific components qualify as equipment rather than building property strengthens audit defensibility.
Section 1245 and 1250 implications affect disposition planning. Equipment and building improvements have different recapture rules upon sale. Understanding these differences supports comprehensive tax planning.
Bonus depreciation applies differently to equipment and real property improvements. Coordinating studies helps maximize bonus depreciation benefits across all facility components.
How Goodlane Group Navigates Equipment Classification
Goodlane Group connects industrial property owners with cost segregation firms experienced in equipment-intensive facilities. Our network includes engineers who understand the boundary between equipment and building improvements.
We help coordinate building cost segregation with equipment depreciation planning. Understanding how these analyses interact ensures comprehensive tax benefits across all facility assets.
Our preliminary analysis identifies potential equipment classification questions for your specific facility. This insight helps plan study scope and engage appropriate expertise.
Beyond initial studies, Goodlane Group provides ongoing support as equipment and facilities evolve. Equipment additions, replacements, and facility modifications all present opportunities for optimized depreciation treatment.