The Tax Advantages of Modular Construction

Modular construction has several benefits — such as easy installation, a reliable build process, and customizability — but you may not know that modular construction could also help you save on taxes.

Unlike traditional stick-built buildings, modular structures often do not fall under the category of 'permanent fixture,' meaning that they are not classified as Real Property. The panel construction of these buildings makes them moveable, which is why they may instead be eligible for classification as Tangible Personal Property under current tax law. This classification yields two key tax advantages:

Faster Depreciation

Under the Modified Accelerated Cost Recovery System (MACRS), conventional construction depreciates after 39 years. Compare this to the depreciation life of modular structures, which is only seven years. That's less than a fifth of the conventional timeframe.

Write-Off

If a quicker depreciation life wasn't enough, Section 179 may also help you fully expense modular purchases in their first year of service. As of 2025, Section 179 allows for a maximum deduction is $2.5 million with a phase-out threshold of $4.0 million. This makes these powerful immediate write-offs accessible to businesses spending up to $6.5 million annually on Tangible Personal Property. 

In addition to Section 179, businesses may also take advantage of Bonus Depreciation, which permits 100% depreciation of qualified modular structures in their first year of service. In some instances, Section 179 and Bonus Depreciation can even be combined.

Running the Numbers

For example, say you purchased $4,000,000 in modular construction materials. Let's also assume your company is in the 21% tax bracket.   

For investments qualifying as Tangible Personal Property, Section 179 would immediately remove $2,500,000 of that purchase. Since your total cost of $4,000,000 does not exceed the 2025 phase-out threshold of $4,000,000, you are able to claim the full new deduction limit of $2,500,000.  

After the Section 179 deduction is applied, the remaining cost basis is $1,500,000. Bonus Depreciation, which was reinstated at 100% in 2025, then kicks in, removing the remaining $1,500,000 in basis.  

Your total deduction for the year is the full $4,000,000.

Accounting for the 21% income tax, you would save $840,000 on your purchase.

You just went from $4,000,000 in capital outlay to a net cost of $3,160,000 (after the immediate tax shield), all because of your strategic modular purchase.

If you want to learn more Section 179, click here. To evaluate eligibility and tax optimization for your specific project, reach out to your tax professional for guidance.