The many advantages of modular wall systems extend beyond time saved during the design process and includes money saved on reconfiguration, heating and air conditioning savings and environmental responsibility characterized by their nearly 100% reusability. But the advantages don’t stop there as your company may realize significant tax-related benefits as well.
The Importance of Classification – Depreciation, as accountants are well aware, is the process by which wear and tear on assets is determined in order to reflect their relative value at various stages of their lifecycle. Depreciation is driven by classification and drywall construction is classified as a capital improvement to the building itself. As such it is depreciated over the same timespan as the building – 39 years. The result is that, while your tax burden on the drywall construction will decrease each year, that decrease will be miniscule.
Accelerated Depreciation – Unlike standard construction of fixed walls modular wall system components are not considered capital improvements to a building. Instead they are classified as office furniture or equipment. As such they are allowed to depreciate over the much shorter period of 5 years which means the annual tax burden on each component of your modular wall system is reduced in noticeably larger increments relative to drywall.
A Powerful Incentive – When it comes to assessing tax liability then the difference between the two modes of classification is significant. Whereas with I-M-T modular wall system components you can write off up to 60% of their cost in just a few years the write off for drywall over the same time span will be a modest 7-8%. So accelerated depreciation means not only greatly reduced tax liability year-on-year but accelerated return on investment as well. Yet more powerful incentives, if any more were needed, to spur your investigation into adapting modular wall systems for your business.