Harrisburg telegraph. [volume] (Harrisburg, Pa.) 1879-1948, 1918-12-06
WEAR AND TEAR
IN BUILDINGS
Income Tax Law Emphasizes
Need of Measuring Stand
ard For Depreciation

New York.-''1ow Much Does
Building Depreciate?" is the title OF
an interesting article contributed by
Leo Day Woodwork. secretary o.
the Advisory Council of Real Es'
tate Interests of New York city
In the course of his article, Mr.
Woodwork says:
Hidden losses are as important
as the known. Owners watch the
changes in their lighting bills and
other comparatively small items OF
expense, while they overlook the
far larger items of depreciation
which is often regarded as a mere
matter of bookkeeping.
Depreciation computations have
now attained a very real prominence
through the enactment of the Fed
eral income tax laws, and especially
" reason of the uneXplainable
methods of administering 1T so lar
as relate to deductions for 'eNhaus-
tion, wear-and-tear.' Attempts 10
offer constructive suggestion in that
regard have made us realize thal
the problem relates to principles
which are surprisingly important
and general. 1t is seen to reappear
with every effort to compute lhe
present value of any structure elth-
er for purposes of investment OF
mortgage loans or for local tax as
sessment. How can the assessoI :
eppointed without regard for speclal
ability, learn reasonable methods lor
determining value from an owner
who also lacks, the necessary llfol-
nation? II.
also the owner will CHAT him
seIf in nearly every case. He usu-
ally will overestimate the value OF
his property both by eXaggeratlnS
the site value and by Thoroughly
Understanding the rate at which
anv building thereon is depreclat-
ing The assessor is glad to ma
that state of mind, as it is to his IN
terest to put the value as hlSh as
possible-especially in states nav
ing a tax limit law or in localltles
where politicians or theories are
anxious to place the heaviest possl-
BILE load upon real properly
"Other owners of buildings re-
fuse to admit or especially TO dls-
eblest businessmen seem to have
lost their heads when they erected
office buildings says a well-lntorm-
sd correspondent, and wish to for
yet the facts rather than TO have
khem tabulated. This is true IN
snanv cases aside from buildings
which are known to be tXtraNa-
CANT monuments. Financial instl-
tuitons frequently recognize no de-
probation on their books Tor many
Eears, although it must be noteu
that others write off their bulldlns
costs more rapidly than the tacts
demand. Bond issues have Deen
issued against buildings where de-
preciation exceeded the sinking
fund or amortization requirements
"It is therefore not only desirable,
but essential, that we fix some
standard for measuring the depre-
citation of buildings. 1t might "ap-
pear that it is readily discoverable
by comparing the opinions of the
leading owners and managers, but
some owners advance the opinion
that on a modern office building a
half per cent. is adequate, whereas
statement from II. j. Burton OF
the Plymouth Building, Minneapo-
lis, and chairman of the commit
lee on ldNdllOu VI NIV ~''Si'ii'''
Association of Building owners
and Managers, says:
1.-The best authorities consider
that there is a steady and inevitable
annual depreciation ranging from
I 5 to 2 per cent. for the structural
portion of the average modern Of
flee building, and from 7 to 10 per
cent. per annum for the mechanical
plant and equipment. This makes
the annual depreciation of the COM
bined structure and plant 81 per
cent. per annum
THE obsolescence of the orna-
mental and finishing work apd of
the architectural plan, which re-
duces the competitive earning ca
pacity of the building, should also
be allowed, and should be differen-
tiated from the obsolescence or de-
cadence of the location, which is re-
hected in the reduced land values.
after much research work in
many leading cities, our committee
has reached the conclusion that the
minimum annual depreciation of
normal office buildings is 3 per cent.
of actual building cost for each of
the first ten years, 2.5 per cent. for
the second ten years, per cent. for
the third ten years, and thereafter
doubtful"
The wide range of opiniony even
among those who have invested
their millions in office buildings
for investment purposes, is ample
proof of the need for comparing
actual experiences.