There are a number of reasons why modular buildings are up to 20% less costly than conventionally built structures. In this installment we examine the ninth reason behind the cost savings associated with modular buildings: accelerated depreciation.
In the right situation modular buildings can qualify for accelerated depreciation. Accelerated depreciation refers to one of several methods by which a company depreciates a fixed asset so the amount of depreciation taken each year is higher during the earlier years of an asset’s life. For accounting purposes, accelerated depreciation is expected to be more productive during its early years, so that depreciation expense will more accurately represent how much of an asset’s usefulness is being used up each year. For tax purposes, accelerated depreciation provides a way of deferring corporate income taxes by reducing taxable income in current years, in exchange for increased taxable income in future years. Accelerated depreciation is a valuable tax incentive the government implemented to encourage businesses to purchase new assets thereby spurring economic growth.
For a modular building to qualify for accelerated depreciation the building must be considered personal property and not real property. The determination of property status is rooted in permanency. In general, personal property will be a temporary building or a building on a temporary foundation that can be moved.
Always consult a professional tax advisor for advice about tax-related decisions. Contact one of Palomar’s modular building specialists to get more information on the kinds of temporary buildings that can qualify for accelerated depreciation.