The Tax Advantages of Modular Construction

Modular construction has several benefits - such as easy installation, a reliable build process, and customizability – but you may not know that modular construction could also help you save on tax expenses.

Unlike traditional stick-built buildings, modular buildings do not fall under the category of 'permanent fixture.' The panel construction of these buildings makes them moveable, which is why they can be classified as 'tangible property' under current tax law. This classification yields two key tax advantages.

Faster Depreciation

Under the Modified Accelerated Cost Recovery System (MACRS), conventional construction depreciates after 39 years. Compare this to the building depreciation life of modular construction, which is only seven years. That's less than a fifth of the conventional timeframe.

Write-Off

If a fast building depreciation life wasn't enough, Section 179 ensures you'll save a significant portion of your tax income with modular purchases. As of 2023, section 179 will write off $1,160,000 of your purchase. After that, this write-off will cover progressively less until you reach a hard cap of $2,890,000 of assets in service.

In addition to that write-off, Section 179 also provides an 80% depreciation bonus to qualifying purchases as of 2023. 

Running the Numbers

For example, say you purchased $4,000,000 in modular construction materials. Let's also assume your company is in the 21% tax bracket.

Section 179 would immediately remove $50,000 of that purchase (remember, coverage decreases with purchases over $1,160,000). After that, bonus depreciation deductions kick in, removing $3,210,000.00 in taxes.

Accounting for income tax, you would save $674,100 on your purchase. You just went from $4,000,000 to $3,325,900 in expenses, all because you went modular.  

If you want to see what you can save from Section 179, click here.