We’ve mentioned before that modular construction features some very useful tax benefits.
Basically, when it comes to tax depreciation (the time it takes to recoup costs of purchased business property in the form of tax savings), there is real property and personal property. Real property, which is basically land based property and immovable, such as hard construction, takes 39 years to depreciate. Personal property on the other hand, is generally movable property or equipment, which takes only 7 years to depreciate.
Modular construction usually happens to fall under the category of personal property, which allows it to depreciate faster, thus allowing you to recoup your costs in tax savings faster than if you were to use hard construction. This is a major plus when it comes to purchasing a modular building.
Changes in this year’s tax code could make those benefits even more attractive.
Previously, in the course of a depreciation schedule, a piece of personal property allows tax savings worth 50% of the original cost of the property in the first year. In every subsequent year, that percentage decreases, until the value of the property is recouped.
However, according to the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” bonus depreciation in the first year has been increased to a full 100%. That means the cost of a property bought by a business to be used by that business can now be recovered in one year!
Qualifying businesses can couple this bonus depreciation with the updated Section 179 code: Businesses can expense up to an increased maximum of $500,000 for qualifying property in the 2010 and 2011 tax years. Over 2 million dollars in purchases will lower that expense amount however.
One thing to keep in mind is this: at the beginning of the 2012 tax year, the section 179 deduction amount will be reduced to $125,000. The phase-out begins with $500,000 in property purchased. Also, 179 applies to a business’ taxable income, so if a company is losing income or has very little, 179 does not help.
This is a great time to expand business. Now when you buy a modular building, the costs of that building can be recovered in not 7 years, but 1 year. However, there is a small window when this is possible. This tax break is effective for property bought and put to use between September 8, 2010 and December 31, 2010. After that period is over, bonus depreciation during the first year goes back to 50%. Also, some companies can take advantage of increased savings by coupling the increased bonus depreciation with the updated Section 179 expensing.
We encourage all of our customers to take advantage of this great tax incentive! Talk to a tax expert and see what sort of tax benefits you can work out.