Tax Considerations for Modular Construction

	PortaFab Modular Construction	Conventional Construction
Cost	$20,000	$20,000
Accumulated Depreciation Deduction	$20,000	$4,100
Tax Rate	34%	34%
Reduction in Taxes	$6,800	$1,400

The current tax laws allow very favorable depreciation rules on all PortaFab inplant offices and portable buildings. Our products typically qualify for a seven year depreciation period while conventional construction must use 39 years. For comparison purposes, after full depreciation write off of our products, only 25% of the cost for conventional construction has been written off.

Conventional construction, by its nature, becomes a permanent, structural addition to the building. This permanent attachment requires the constructed office to be classified as "real property" with a 39 year depreciation life.

PortaFab's products can be fully dismantled, relocated and re-assembled. This mobility allows the PortaFab products to be classified as tangible property with a seven year depreciation life.

Example:
Assume cost of new office is $20,000. At the end of eight years (1/2 year depreciation in year of addition and disposition) when the PortaFab office has been fully depreciated, the conventionally constructed office still has $14,900 remaining to depreciate.

If the difference o $5,400 was invested at 8% for the remaining 31 years, the result would yield approximately $59,000 in added benefit.

In summary, accelerated depreciation for PortaFab's products is allowed while conventional construction requires the use of a straight line method. The result is faster recovery of the cost in earlier years.

We suggest you consult with your accountant to determine applicable of these provisions to your situation.