There are several 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 is one of several methods by which a company depreciates a fixed asset, so the 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 in its early years, so depreciation expense will more accurately reflect how much of an asset’s usefulness is being used each year. For tax purposes, accelerated depreciation allows a company to defer 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 that the government implemented to encourage businesses to purchase new assets, spurring economic growth.
For a modular building to qualify for accelerated depreciation, it must be treated as personal property rather than real property. The determination of property status is rooted in permanency. In general, personal property is 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.
