Structural Components
The term "structural component" includes such parts of a building as walls, partitions, floors, and ceilings, as well as any permanent coverings, therefore, such as paneling or tiling; windows and doors; all components (whether in, on, or adjacent to the building) of a central air conditioning or heating system, including motors, compressors, pipes and ducts; plumbing and plumbing fixtures, such as sinks and bathtubs; electric wiring and lighting fixtures; chimneys; stairs, escalators, and elevators, including all components thereof; sprinkler systems; fire escapes; and other components relating to the operation or maintenance of a building.
Generally, real property only includes a structure that is a building and is property. A building is specifically excluded from the definition of a land improvement for purposes of MACRS. Under these tests, a structure is not a building unless it is designed to be permanently attached to the ground and also meets an appearance and function test. Generally, a structure that is not a building will either be a land improvement (if it is "inherently permanent") or personal property, which is usually depreciable over a shorter period than a land improvement. The courts have developed two tests derived from the investment tax credit regulations to determine whether a structure is a building: (1) the inherent permanency test and (2) the appearance and function test.
Land Improvements
Land improvements will generally be categorized as property. Land improvements include, for example, swimming pools, paved parking areas, sidewalks, roads, bridges, and fences because these structures are inherently permanent and are not buildings.
Tangible Personal Property
Tangible personal property includes (but is not limited to) all property, other than structural components, which is contained in or attached to a building. All property that is in the nature of machinery (other than structural components of a building or other inherently permanent structure) is considered tangible personal property even though located outside a building. Examples include:
- production machinery
- printing presses
- transportation and office equipment
- refrigerators
- counters
- testing equipment
- display racks and shelves
- neon and other signs contained in or attached to a building
Filing requirements for depreciation recovery period changes. The change to the depreciation lives requires either an amended return (if only one return has been filed) or an accounting method change (if two years after the property is acquired or placed in service). The reporting to the IRS includes the change of basis, depreciable lives, and any adjustments for the impact of the depreciation acceleration from the date placed in service to the year of the method change.
The accounting method change is used because the taxpayer is seeking permission to correct the recovery period of assets that were misclassified as real property. The unclaimed depreciation may be claimed as an adjustment deduction in a single tax year. The taxpayer must file Form 3115, Application for Change in Accounting Method.
