Accelerating tax deductions

Not all tax deductions are created equal. When it comes to building projects, the normal write-off for building costs is 39 years. However, with a little homework and the help of a builder and architect, you can accelerate deductions. The concept at work: cost segregation.

Gary I. Glassman, CPA

A tax court case involving the Hospital Corporation of America set the stage, allowing accelerated write-offs of segregated building costs. Items considered tangible personal property can even be expensed under Internal Revenue Service section 179 in the year of purchase.

What could qualify? Electrical wiring or computers that are directly related to a piece of medical equipment can be considered part of the cost of the equipment and can therefore be expensed or written off over five or seven years. Plumbing for a wet table or automatic processor should qualify and so would special cabinetry. When it comes to flooring costs, tile has a 39-year write-off, while vinyl floors or carpeting qualify for a seven-year write-off. Landscaping and paving are covered under a 15-year write-off.

A new tax provision under the American Jobs Creation Act of 2004 allows tenants who make improvements more than three years after the date the building was placed in service to accelerate the leasehold improvement write-off period from 39 years to 15 years for expenditures made between Oct. 22, 2004, and Jan. 1, 2006. This is great news if you're just starting a practice in a leasehold space.

To benefit from these rules, talk with your tax advisors well in advance so you can take full advantage of the options the tax law provides. And make sure your builder or architect documents the segregated project costs. It will be well worth your effort.

Gary I. Glassman, CPA, is financial consultant and a partner with Burzenski and Co. PC in East Haven, Conn., and a Veterinary Economics Editorial Advisory Board member.