Depreciation and Tax Considerations for

MSI “EquipmentCenters” vs. Site Constructed “Buildings”

Current tax laws allow very favorable depreciation on all Metal Systems, Inc. “Equipment Centers” (portable, modular metal enclosures).  These products qualify for a 7-year depreciation period while conventional permanent construction is depreciated over 39 years.  Understanding the significance of this difference is very important.

The Economic Stimulus Act of 2008 may allow for a even more rapid write off of capital expenditures! Please consult your financial advisor to see if you qualify.

Conventional construction, by its nature, becomes a permanent structural addition to a building, and thus it is classified as “real property” with the longer 39-year depreciable life.

Metal Systems, Inc. products, on the other hand can be fully dismantled, relocated, and reassembled.  This mobility, under the Modified Accelerated Cost Recovery System (MACRS), allows the Metal Systems, Inc. products to be classified as “tangible property” with a shorter 7-year depreciable life.

EXAMPLE:  Assume the cost of a new structure is $100,000.  At the end of 7 years, the Metal Systems, Inc. “Equipment Center” is fully depreciated and has reduced taxable income by the original $100,000 cost.  Conversely, the permanent construction has been depreciated less than 18% and reduced taxable income by only $17,950.  Assuming a 34% tax rate, the Metal Systems, Inc. “modular” solution provides $27,900 in real dollar tax savings during the first 7 years!

But the savings don’t stop here.  Invest the $27,900 difference and let it pay for your original $100,000 investment one day!

Shorter depreciation periods produce accelerated depreciation for Metal Systems, Inc. products and that means faster recovery of total costs.

Since tax laws are constantly being modified, we suggest that you consult with your company accountant to determine the application of these provisions.

June 2006