How to Factor the Depreciation of Commercial Buildings


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Factoring in depreciation of a building that has been purchased for commercial means is important for taxes, the value of assets and if the property is to be sold at some point. These numbers are applied to tax documents and in accounting books for the company, and it is essential to know how much the real estate value is each year.

One of the most important factors of commercial buildings that have been purchased for business or for investments is the depreciation that is part of the yearly wear and tear of a property. The depreciation is considered important for accounting and tax purposes, but it is also essential when buying, selling and investing in real estate. Commercial buildings may have investors attached based on the funds acquired for the venture or when there are certain dealings in place that permit the owner of the company and the investor to profit through sharing the revenue obtained by business transactions.

Another aspect of depreciation is the ability to claim it on tax returns for the business. It may even be possible to profit through various programs such as the super fund which permits a legal claim of the commercial real estate depreciation allowances with tax documents. This may benefit the owner of the business or investors attached to the property. However, it is important to understand what depreciation is and how it affects items such as real estate, holdings, equipment and other items that are owned or rented by the company or that investors have invested funds into when dealing.

Older Commercial Buildings

When the owner of a company must factor in depreciation with his or her property, equipment and tools, this includes any owned commercial buildings that are older as well as newer. While the old buildings may depreciate faster depending on the care and maintenance applied, these could still receive allowances based on the materials used to construct the real estate. The bricks, concrete, metal rods, other metal or brick surfaces and similar resources are all worth an amount. However, the date of the constructed building will affect whether or not tax allowances are permitted.

The depreciation factor applied to the building is different based on the year construction began to build it. For periods of July 20th in 1982 until August 21st, 1984, there is a 2.5 percent depreciation for construction costs. August 22nd, 1984 through September 15th, 1987 this amount is at four percent. Then, from the 16th of September 1987 until current time, the depreciation is again at 2.5 percent. While some buildings may require some research to determine these dates, others have been recorded and owned by the same company for decades. If there is any confusion or questions needing answers, a tax professional should be contacted.

Effective Life and Commercial Properties

Residential and commercial buildings are different in taxes and may depreciate at different rates. This may be based on the materials, the living and maintenance conditions and similar circumstances. Some property and objects within these structures may be claimed at different years such as equipment which may not be possible at all with residential property. Tools could be claimed by both, but commercial real estate often has additional tools and machinery. The lifetime for these objects and items may be longer in commercial structures than in residential. There is usually a list of items that may be claimed as well as a similar list for those excluded.

The type of commercial property also affects the effective life and what may be claimed or what depreciates. In the food industry, there are pieces of equipment such as the kitchen appliances where they are not available in a farming manufacture plant. The quality behind these objects also determines the depreciation allowances and how long an effective life the items have. Taller structures may depreciate slower if there are more services to retain the structural conditions. Many that are involved in these calculations may need to retain the services of a professional to determine how much the building has depreciated and how much life is left before it is no longer an asset.

Legal Support in Commercial Depreciation

The penalties and negative impact of depreciation occurs through tax filing with buildings. If there is any confusion about these matters or if the owner of the company may face consequences for incorrect details, a tax lawyer should be hired for support. He or she may ensure the right forms are filed and the correct information supplied.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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