The rules for Building Systems, the fourth topic in our series, clarify that a building has nine different units of property when determining if an expenditure is a capitalized improvement or a deductible expense.

The unit or property concept is the foundation for capitalization analysis.  The general rule is that all functionally interdependent components are a single unit of property.  Prior to these rules, only the building in its entirety was considered a unit of property.  Under these new rules, to determine if a building expenditure meets the improvement standard to be capitalized and depreciated over its useful life rather than a deductible expense, each of these following nine building systems are considered a unit of property:

  1. Heating, ventilation and air conditioning (HVAC) systems
  2. Plumbing systems (pipes, drains, sinks, toilets, etc.)
  3. Electrical systems (wiring, outlets, lighting fixtures, etc.)
  4. All escalators
  5. All elevators
  6. Fire protection and alarm systems (sensing devices, computer controls, sprinkler heads, etc.)
  7. Security systems (window and door locks, security cameras, recorder, monitors, motion detectors, etc.)
  8. Gas distribution systems
  9. Other structural components (roof, walls, floors, etc.)

What this means to you:  Through the Building Systems rules, building expenditures are analyzed as a part of one of the nine building systems, rather than the entire building, to determine if a capitalized improvement or a deductible expense exists.

If you would like additional information or have any questions, please contact Faith Crump ( or Jeff Crumpley (

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