The IRS Is Trying To Help Funeral Homes Pay Them Less! (Don’t believe it? – read on)
This statement is directly from www.irs.gov, “Buildings and structural components have substantially longer depreciable lives than personal property. Therefore, it is desirable for taxpayers to maximize personal property costs in order to accelerate depreciation deductions and, hence, reduce tax liability.”
This largely overlooked tax strategy often reaps over $100,000 in tax benefits for a typical funeral home.
This strategy dates back to 1959 when the U.S. Tax Court allowed building owners to pursue component-based depreciation. In 2004 the IRS established a ‘Cost Segregation Audit Techniques Guide’; the Guide provides clear direction regarding how to establish the cost basis for non-structural building components and which depreciation time-lines to use for electrical wiring, plumbing, partitions, carpeting, finishes, parking lots, landscaping (and other qualifying components).
Think of it this way; why depreciate, say, carpeting in a 39-year time-line as if it were a structural steel beam? The IRS allows building owners to depreciate many such items in a more appropriate 5-year time-line. In fact, roughly 20% of your Funeral Home could likely be moved from 39-year to 5-year time-lines!
And just when you think you’ve died and gone to heaven (a little Funeral Home industry humor), it gets better! The IRS allows you to move such depreciation that you didn’t claim in years past, so-called ‘catch-up depreciation’, into your current tax year without having to do an amendment. Your CPA can move this ‘catch-up’ figure to your current tax year through a simple 481 change in accounting method.
The IRS recommends that building owners wishing to take advantage of this logical and well-established tax strategy conduct an Engineering Based Cost Segregation Study which documents:
- A building’s qualifying non-structural components and
- The depreciable cost basis for each of those components
The Study also places each component in the appropriate time-line per the IRS Guide.