building depreciation components

Building componentization is the segregation of building “parts” into components that roll up into Building Shell, Building Services, and Building Fixed Equipment. 

What you need to know about building components: 

  • Component costs represent original acquisition costs.
  • Federal funds are appropriately apportioned and deducted.
  • Fixed equipment costs are treated as a component of the building and depreciation may be allocated to the percentage of research by room. 
  • Depreciation generated from the cost distribution to component(s) is allocated to the entire building on an assignable square foot basis. 
  • On occasion, the component is not fully depreciated but is being replaced (floor cover, roof cover etc.), which is known as a “layering effect” and is addressed by componentization.  
  • Useful lives must take into consideration factors such as type of construction, nature of the equipment, technological developments in the particular area, historical data, and renewal and replacement policies.
  • By depreciating at the component level and reviewing areas of renovation, one now has the ability to remove only component costs that are being replaced. Accurate removal costs instead of a percentage of project cost.
  • Not all buildings need to be considered for detailed cost segregation. Specific criteria can be set for buildings (i.e. buildings with 25% > organized research with book cost of $20 million >) as long as not “cherry picking”. 

“The entire building, including the shell and all components, may be treated as a single asset and depreciated over a single useful life. A building may also be divided into multiple components. Each component item may then be depreciated over its estimated useful life” – Uniform Guidance § 200.436

Tips to optimize your building depreciation recovery:

  1. A  building provides the most benefit when:
    1. There is significant research activity
    2. It is expensive
    3. It is university paid
  2. Be on the lookout for major construction projects since your last proposal. It’s important to communicate with Space Management and Facilities. 
  3. Know when new research-intensive buildings are coming online. Key dates to know:
    1. Completion date
    2. Occupancy date
  4. Know which departments are moving into new spaces and what will happen to the space they vacate. 
    1. “Decompression” is great!
    2. You’re essentially spending the same dollars, but gaining more space. 
  5. Know the nature of the research activity, including PIs with established research portfolio vs. new faculty. 

At HCA, we want to help you realize the maximum benefit as quickly as possible through Building Componentization. Your facilities have a unique relationship to your organization, and we’re here to work closely with you to support your goals through:

  • Property management standards
  • Financial reporting requirements
  • Federal cost reimbursement regulations
  • Risk management compliance issues
  • Financial and federal audit support
  • Inventory perpetuation services

It starts with a conversation. Let’s set up a time to talk.