CPI systems are considered to be technological electrical equipment and not real estate; therefore, it can be depreciated over 5 years compared to conventional electrical equipment’s 30-year depreciation.
Many chain accounts classify the CPI system as equipment versus real estate which allows for a five year fast track depreciation schedule versus 29 years for conventional installations.
$17,155.00 (approx. system cost) x 40% (average corporate tax rate) = $6,862.00 savings over 5 years
($6,862.00/5years = $1,372.40 savings per year)
In our opinion, the control panels you are installing that include a microprocessor are considered “qualified technological equipment” as defined in Internal Revenue Code Section 168(i)(2). Therefore, these panels should be depreciated using the Modified Accelerated Cost Recovery System (MACRS) method over a life of five years.
Those panels that do not include a microprocessor are also eligible for depreciation over a life of five years. A recent Tax Court ruling determined that part of the cost of primary and secondary electrical systems that carry the electrical load to a company’s equipment is Section 1245 personal property and not structural components. Therefore, these assets are eligible for a shorter life.
Elliot & Warren | Certified Public Accountants