Dividing real estate improvements into various parts such as the roof, plumbing, electrical system, and shell, then depreciating each component separately for tax purposes.
Accounting method for separately depreciating individual parts or elements of a building or improvement qualifying as business use or depreciable asset under the IRS tax code. In component depreciation, each component has its own class life and recovery period.
A method of depreciation involving the separation of the cost of various elements of a building (such as roofing, plumbing and mechanical components) to take advantage of the shorter useful lives of such elements and thereby increase the depreciation deductions in the early years of a project.
A method of calculating depreciation where separate items of a building having different useful lives are depreciated on different schedules. For example, furniture may be depreciated at 20%, class 8, while paving may be depreciated at only 8%, class 17.
For tax purposes, allocating a portion of the total cost of renovation to each component of the renovation (roof, plumbing, electrical, foundation, etc.) and then depreciating the cost of each component separately.