Qualified Leasehold Improvements Now Eligible for Section 179 Expensing

In my previous post, I indicated the amounts deductible under the revised Bonus and Section 179 provisions. One of the major changes to Section 179 expensing is the ability to fully deduct qualified leasehold improvements. Qualified leasehold improvements can be expensed up to $250,000 for tax years beginning in 2010 and 2011. Section 179 historically was only applicable to tangible personal property not real property. Due to the intricacies of the law as to what types of property qualify, I have laid out specific guidelines to assist in determining the deductibility of qualified leasehold improvements under Section 179.  To reiterate the annual limitations, the maximum deduction for qualified Section 179 property is $500,000 and the investment limit is $2,000,000 for tax years beginning in 2010 and 2011.

 

1. Qualified Leasehold Improvement Property-

Includes any improvement to the interior of a non-residential building if:

  1. The improvement is made pursuant to a valid lease;
  2. Such portion is occupied exclusively by the lessee or sub-lessee (not common area);
  3. The improvement is placed in service more than 3 years after the date the building was firstplaced in service;
  4. A lease between related persons does not qualify.

 

2. Qualified Restaurant Property

Includes a building or an improvement to a building if more than 50% of the building's square footage is devoted to preparation of, and seating for, on-premises consumption of prepared meals.

 

3. Qualified Retail Improvement Property

Any improvement to an interior portion of a building which is nonresidential real property if:

  1. Such portion is open to the general public and is used in the retail trade or business of selling tangible personal property to the general public, and;
  2. Such improvement is placed in service more than 3 years after the date the building was first placed in service.

 

Qualified retail improvement property, like qualified leasehold property, may NOT include:

  1. Any enlargement of the building;
  2. Any elevator or escalator;
  3. Any structural component benefitting a common area, or the internal framework or structure of  the building.

 

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Ann Callari, CPA, MST is a Senior Tax Manager at the NJ Regional Firm, Rotenberg Meril Solomon et al in Saddle Brook, NJ. Ann founded and heads the firm’s tax department. She specializes in corporate and partnership taxationas well as multi-state compliance issues. Ann has always worked in public accounting and enjoys the tremendous challenge of staying abreast of the ever-changing tax laws. She feels public accounting keeps you sharp and on your toes. Ann is a working mother who continually juggles the demands of the children she adores and the career that she is passionate about. She looks forward to sharing her tax knowledge and professional experiences with her fellow bean counters and encourages a healthy exchange of ideas and commentary.

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