Business & Consulting T

Frameworks, Tools & Templates

created by ex-McKinsey & BCG
Consultants
Slidebooks Consulting

TAX LAWS

Voices A depreciation case study: When

decoration is functional
By David McGuire November 29, 2018, 4:38 p.m. EST 2 Min Read

Depreciation law is confusing and tricky. All one needs to do is compare the number (and
thickness) of the guidebooks on depreciation that publishers release to those they offer on other
areas of the Tax Code.

Much of this confusion comes from the fact that depreciation law is heavily driven by case law.
Those who attempt to simplify the rules often overlook or incorrectly categorize assets. Take the
statement, “Things that are decorative in nature are personal property.” This is not always the
case, as construction methods, attachment and designed permanency must be taken into
consideration.
Enjoy your complimentary content
Sign up for actionable insights public accoun
Let’s look at the tax treatment on the installation of aluminum composite material panels, or ACM
panels. These are metal panels that can be locked together. They are often used in many new
construction and renovation projects, especially in the construction of car dealerships.

Article Managing Cash Flow– a Critical Factor to Small Business Success

Your small business clients are a key pillar of the U.S. economy, providing
income to their families and delivering growth and innovation to the...

PA R T N E R I N S I G H T S
SPONSOR CONTENT FROM CHASE INK

For depreciation purposes, the question becomes, “Are these panels solely decorative in nature,
or are they related to the structure of the building?” In most cases, ACM panels are part of the
building structure and also provide insulation and weather resistance.

For a recent project, my colleagues and I at McGuire Sponsel reviewed the exterior of a building
consisting of plywood sheathing and Tyvek wrap covered with insulated ACM panels. Not only did
the ACM panels provide insulation, but they also created a weather seal over the Tyvek wrap.
Without the ACM panels, water and other elements would quickly in ltrate the building.
Additionally, many of the glass storefront windows were integrated into the ACM paneling.
Without the panels, the building’s windows would have little to no support.

In some cases, renovations involving ACM panels are purely decorative in nature. They might be
installed to change the look of a building simply for branding purposes, similar to using wood
paneling to change the look of an interior room. Anyone looking at such a project for tax purposes
must review the blueprints to determine how the panels were added, if they add any structural
support or weather resistance to the building, and if the storefront or other structural portions
are tied into the system.

When dealing with ACM panels, it is critical for professionals to review projects on a case-by-case
basis with quali ed cost segregation engineers. Decision-makers must understand both
applicable tax law and the building techniques used during installation.

Enjoy your complimentary content

Sign up for actionable insights public accoun
Taxpayers may be well-advised to seek additional expertise when evaluating the installation of
other decorative assets as well, both interior and exterior. It is not enough to simply state an asset
is decorative. A review must address the attachment of the assets, the way the building is
constructed around the assets and whether the assets have “designed permanency.”

Quali ed cost segregation professionals should be able to answer these questions, provided they
have experience in both tax law and construction techniques. This becomes even more critical in
the new tax environment where personal property items are subject to 100 percent bonus
depreciation.

Yes, depreciation law is confusing, but it also presents signi cant opportunity for property
owners.

David McGuire Shareholder, McGuire Sponsel

REPRINT

For reprint and licensing requests for this article, click here.

TAX LAWS TAX REGULATIONS COST SEGREGATION STUDIES

Enjoy your complimentary content

Sign up for actionable insights public accoun
TRENDING

IRS

Lawmakers ask IRS to extend tax season until July 15

Democrats on the House Ways and Means Committee are urging the Internal Revenue Service to extend tax
season beyond April 15 to give taxpayers another three months until July 15.
By Michael Cohn

6h ago

IRS

IRS offers exibility on carrying over FSA funds

New guidance shows how employees and employers can carry over unused money from exible spending
accounts and dependent care assistance programs.
By Michael Cohn Enjoy your complimentary content
7h ago Sign up for actionable insights public accoun
TAX PLANNING

Tax season: What the IRS says clients and advisors can expect
The agency’s commissioner is upbeat, but tax preparers and nancial planners worry that this year could be
especially chaotic due to the COVID pandemic.
By Lynnley Browning

9h ago

MORE FROM ACCOUNTING TODAY

FINANCE, INVESTMENT AND TAX-RELATED LEGISLATION

Democrat bills would help the IRS go after wealthy, corporations

House Democrats are proposing two pieces of legislation that would also provide more funding for the Internal
Revenue Service.
By Michael Cohn

9h ago

IRS

IRS continues to face mail backlog amid pandemic

The Internal Revenue Service is still dealing with a backlog of unprocessed mail from 2020, hurting its efforts to
provide help with COVID-19 relief payments and this year’s tax season.
By Michael Cohn

10h ago

Enjoy your complimentary content

Sign up for actionable insights public accoun
TAX-RELATED COURT CASES

Tax Fraud Blotter: Pants on re

Family affairs; Ultimate crime; level effects; and other highlights of recent tax cases.
By Jeff Stimpson

11h ago

CORONAVIRUS

KPMG speaks out against Asian-American violence

Paul Knopp, KPMG U.S. Chair and CEO, posted an internal message on LinkedIn reiterating the rm's
condemnation of "discrimination, harassment or racism" against Asian-Americans during the COVID-19
pandemic.
By Sean McCabe

February 17

DONOR-ADVISED FUNDS

DAFs stepped up charitable giving during pandemic

Holders of donor-advised funds increased their disbursements last year in response to urgent demands for
Enjoy your complimentary content
greater charitable contributions to cope with the COVID-19 pandemic.
Sign up for actionable insights public accoun
By Michael Cohn
February 17

TAX SCAMS

IRS warns of ghost tax preparers

The Internal Revenue Service issued a warning Wednesday to taxpayers to beware of unethical “ghost” tax
preparers who don’t sign tax returns for clients.
By Michael Cohn

February 17

Like what you see? Make sure you're getting it all

Accounting Today is a leading provider of online business news for the accounting community, offering
breaking news, in-depth features, and a host of resources and services.

About Us RSS Feed

Contact Us Privacy Policy
The Magazine
Subscription Agreement
Content Licensing/Reprints
Advertising/Marketing Services

© 2021 Arizent. All rights reserved.

Enjoy your complimentary content

Sign up for actionable insights public accoun