Open-Air Parking Structures: Land Improvement or Building?

Mar 1, 2020

There has been much debate over the years concerning open-air parking structures and whether the structure, for depreciation purposes, should be depreciated as 39-year nonresidential real property or 15-year land improvements. The Internal Revenue Service Large and Mid-Size Business Division released a Coordinated Issue Paper (“CIP”), effective July 31, 2009 that addresses this issue. The CIP recommends that the structures be depreciated over 39 years with penalties to those who choose to depreciate these structures over 15 years. There have been two schools of thought regarding these types of structures. The 15-year argument has been that:
  • The structure is not a formal enclosure like a building in that there are no wall structures from floor to ceiling
  • While there may be barriers in place for safety purposes these do not constitute wall structures
  • The upper level of the structure does not have a roof to provide shelter
  • The structure does not have other items inherent in buildings, including HVAC, windows, ceiling systems, building structure, etc.
The 39-year argument as presented in this CIP is:
  • There is a roof and wall system in place in the structure, and the lack of HVAC or some building-like structural components does not preclude the structure from being considered a building
  • The upper level of the structure is similar to any roof on a building or rooftop deck
  • The normal expected life assuming normal maintenance of the open-air structure is anywhere from 25 to 40 years
Additionally, the CIP concludes that negligence penalties should apply as there is no formal argument or authority to suggest that open-air parking structures are 15-year land improvement property. While this CIP is not a formal revenue ruling, court case, or IRS position, this opinion will need to be considered in the decision making process in how to depreciate these open-air parking structures.