I have a client that went to a seminar and was told that leasehold improvements on commercial real estate were now able to be deducted under section 179 provided the building had been in use over three years. Is this true? I don't see it.
I doubt it is true. They are probably confusing it with the extension of the 15 year (vs. 39 year) depreciation for qualified leasehold improvement property if the building has been in service more than three years.
Leasehold Improvements do NOT qualify for the Section 179
I think they meant that Economic Stimulus Act extended BONUS DEPRECIATION to assets with a life of 20 yrs or less for 2008. ARRA extended that to cover 2009.
http://www.irs.gov/newsroom/article/0,,id=183867,00.html
Special Depreciation Allowance
The Economic Stimulus Act also provided a 50 percent special depreciation allowance for property acquired and placed in service during 2008. Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property over several years. It is an annual allowance for the wear and tear, deterioration or obsolescence of the property.
Under the new law, a taxpayer is entitled to depreciate 50 percent of the adjusted basis (after subtracting any section 179 deduction taken on that property) of qualified property during the year the property is placed in service. For example, if the taxpayer purchased and placed in service in 2008 a single piece of property at a cost of $450,000 that qualified for section 179 expensing and the 50 percent special depreciation allowance, $250,000 of the cost could be immediately expensed (under section 179 ) and the remaining $200,000 of adjusted basis would be available for the 50 percent special depreciation allowance. The taxpayer would also be permitted to take regular depreciation on the remaining $100,000 of adjusted basis during that year. This is similar to the special depreciation allowance that was previously available for certain property placed in service generally before Jan. 1, 2005, often referred to as “bonus depreciation.”
The types of property that qualify for the 50 percent special depreciation allowance are section 168 property with a recovery period of 20 years or less, off-the-shelf computer software, water utility property and qualified leasehold improvement property.
To qualify for the 50 percent special depreciation allowance, a taxpayer must meet all of the following tests:
The taxpayer must have acquired the property after December 31, 2007, and before Jan. 1, 2009. If a binding contract to acquire the property existed before Jan. 1, 2008, the property does not qualify for the special depreciation allowance.
The property must be placed in service before Jan. 1, 2009 (before Jan. 1, 2010, for certain transportation property and certain property with a long productions period).
The original use of the property must begin with the taxpayer after Dec. 31, 2007. In other words, the property must be “new” property.
Prior to the enactment of the Economic Stimulus Act the total depreciation amount (including the section 179 deduction) a business could deduct for a passenger automobile was $2,960. The Economic Stimulus Act increased this limitation by $8,000. Therefore, the maximum limit is increased to $10,960 for automobiles for which the special bonus depreciation allowance is claimed.
Prior to the enactment of the Economic Stimulus Act, the total depreciation amount (including the section 179 deduction) a business could deduct for a truck or van used in a business and first placed in service in 2008 was $3,160. The Economic Stimulus Act increased this limitation by $8,000. The new maximum limit is increased to $11,160 for trucks and vans for which the special bonus depreciation is claimed.
The Economic Stimulus Act is the most recent legislation that provides depreciation tax benefits. Previously, the Job Creation and Worker Assistance Act of 2002 allowed an additional first-year depreciation deduction equal to 30 percent of the adjusted basis of qualified property for property acquired on or after Sept. 11, 2001, and generally placed in service before Jan. 1, 2005. The Jobs and Growth Tax Relief Reconciliation Act of 2003 provided an additional first-year depreciation deduction equal to 50 percent of the adjusted basis of qualified property for property acquired after May 5, 2003, and generally placed in service before Jan. 1, 2005.
Check Pub 946, or look up qualified leasehold improvements. Yes you can 179 if the property is older than 3 years.
AND the property is "Specified Gulf Opportunity Zone Extension Property" (GO Zone) per Chapter 3, page 25-26 of Pub 946.:
Specified Gulf Opportunity Zone Extension Property
You can take a special depreciation allowance for specified Gulf Opportunity Zone (GO Zone) extension property (defined below) placed in service in specified portions of the GO Zone. Specified GO Zone extension property must meet certain tests, explained under Other Tests To Be Met on page 26. Also, specified GO Zone extension property cannot be excepted property, explained under Excepted Property on page 27.
Specified GO Zone extension property. Specified GO Zone extension property includes any of the following property.
Nonresidential real property or residential rental property placed in service in specified portions of the GO Zone (discussed below) before January 1, 2011, or
Any of the following types of property placed in service in a building described above before January 1, 2011:
Tangible property depreciated under the modified accelerated recovery system (MACRS) with a recovery period of 20 years or less. See Which Method Can You Use To Depreciate Your Property in chapter 1.
Water utility property, which is either (a) property that is an integral part of the gathering, treatment, or commercial distribution of water, and that, without regard to this provision, would be 20-year property or (b) any municipal sewer.
Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS.
Qualified leasehold improvement property, defined below.
In addition, substantially all (80% or more) of the use of the property described in (1) through (4) above must be in the building and placed in service no later than 90 days after the building is placed in service.
Specified portions of the GO Zone are those counties or parishes in the GO Zone that are identified by the IRS as having more than 60% of the occupied housing units damaged by the hurricanes occurring during 2005. For guidance identifying the affected counties and parishes eligible for the extension of the placed in service date, see Notice 2007-36 on page 1000 of the Internal Revenue Bulletin 2007-17, available at www.irs.gov/pub/irs-irbs/irb07....
Qualified leasehold improvement property. Generally, this is any improvement to an interior part of a building that is nonresidential real property, if all the following requirements are met.
The improvement is made under or according to a lease by the lessee (or any sublessee) or the lessor of that part of the building.
That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part.
The improvement is placed in service more than 3 years after the date the building was first placed in service by any person. (emphasis added)
The improvement is section 1250 property. See chapter 3 in Publication 544, Sales and Other Dispositions of Assets, for the definition of section 1250 property.
May not matter to Rockierick all that much now, since it was a question from last year. ;)
True, and I did notice that fact. But Lucky489's post was today - and I wasn't able to ignore the incorrect incomplete info given by him/her
