Common use of Depreciation and Use Allowance Clause in Contracts

Depreciation and Use Allowance. Unless otherwise approved by the COUNTY, compensation for the use of buildings and other capital improvements may be made through depreciation, or a use allowance:  The computation of depreciation/use allowance is based on the acquisition cost of the asset(s).  The computation should exclude the cost of land, buildings, and equipment donated by federal, State or COUNTY governments and the cost of buildings and land contributed by the CONTRACTOR to satisfy funding matching requirements.  For depreciation, an appropriate useful life must be established for the asset(s) which considers factors such as the nature of the asset used, susceptibility to technological obsolescence, etc.  Appendix B to IRS Publication 946, “How to Depreciate Property”, contains guidelines for establishing an asset’s useful life.  A use allowance is computed as an annual rate that may not exceed an annual rate of two-percent of the acquisition cost if the asset is a building or improvement. A use allowance in excess of the ceiling percentage must be justified by the CONTRACTOR.