Obsolescence: How You Should Leverage It For Property Tax Savings

Posted by Anne Sheehan on Oct 18, 2016

three-ways-to-leverage-obsolescence-in-your-real-estate-holdings.jpgWhen you buy a new car, it loses value the minute you drive it off the lot. The longer you have the car, the more its value decreases. The same principle also holds true for your company’s personal property and real estate holdings. While both depreciate through physical wear and tear, you might be able to claim additional depreciation, or obsolescence. Obsolescence affects the value of real estate and personal property, due to conditions beyond the physical property.

So, how do you leverage obsolescence to your advantage? Find out the impact obsolescence has on your property and explore three ways to leverage it for personal and property tax savings.

How Does Obsolescence Impact Property Value?

Obsolescence is a form of depreciation in value of your personal property or your commercial real estate due to internal or external factors. This is an especially important issue to note and track if you live in a state that taxes business personal property.

For example, if your business supplies equipment for coal companies, you’d likely be feeling the pressure of operating in a dwindling industry. Alternative energy sources and governmental tax breaks for sustainable practices have decreased profits in the coal industry. The external force of declining business in an industry you supply to would negatively impact the value of your own inventory.

The functionality of your building is another way obsolescence could impact the value of your property. If you’re a manufacturer that still operates with employees on an assembly line and the industry has automated, you are experiencing functional obsolescence. With best-in-class automation, your building no longer needs to be so large. The building is no longer functioning as it once was, devaluing the property.

So, how do you use obsolescence to your advantage, instead of being subject to excessive taxes?

Leveraging Obsolescence To Your Advantage In 3 Steps

  1. Accurately report the value of personal property. If you are not regularly tracking the value of your property, it’s nearly impossible to give your jurisdiction an accurate report, or identify areas of obsolescence. The onus is on you to pinpoint changes in personal property value and report them to your jurisdiction. You need to keep track of your assets and their value.
  2. Identify obsolescence in all its forms. You should look for two basic types of obsolescence in your company: changes in your industry and lack of functionality in your structure or assets. If your industry is in decline, you know that demand for your products or services is decreasing, reducing their value. Similarly, if your property or assets are no longer functional, their value decreases. Use this information to evaluate the amount you’re paying in property taxes. If this obsolescence isn’t reflected in your property tax assessment, it’s likely you’re overpaying.
  3. Work with a property tax expert. If you don’t know how to leverage obsolescence to your advantage, or lack the time and resources to do so, it’s best to partner with a property tax expert. Property tax experts understand the parameters of obsolescence and how to report it to your jurisdiction.

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Tags: obsolescence, property tax savings

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