Do you own or rent commercial property?

If so, you should seriously consider making “qualified leasehold improvements” in 2013.  This year, you can take a Section 179 deduction¹, if eligible, of up to $250,000, then 50% bonus depreciation² and finally, 15-year depreciation³.  For example, if you spent $500,000

  •  Take the Section 179 deduction of $250,000 first
  • Then take $125,00 in bonus depreciation ($500,000-250,000)*50%
  • Finally, deduct $4,163 with the IRS’s first year midyear convention using 15-year depreciation.

So in year 2013, you could, if taxable income allows, take a total depreciation expense of $379,163.  If you wait until year 2014, your depreciation expense is $12,305 since commercial property will be depreciated over 39 years.

What qualifies as Leasehold Improvement Property?

  •  Utilities
  • Framing
  • Walls
  • Doors
  • Windows
  • Pipe and fittings
  • Plumbing fixtures
  •  Fire protection
  • HVAC (heating, ventilation and air conditioning)
  • Permanent interior finishes
  • Permanent floor coverings
  • Millwork and trim

In addition,

  •  The improvement must be made under or pursuant to a lease by the lessee (or any sub-lessee) of the interior portion, or by the lessor of that interior portion:
  • The interior portion of the building is to be occupied exclusively by the lessee ( or any sub-lessee) of that interior portion; and
  • The improvement is placed in service more than 3 years after the date the building was first placed in service by any person.

If you would like to learn more about this tax strategy, please call Susan at 847.895.9880.

¹ IRC Section 179(f).

2 Reg. Section 1.168(k)-1(b)(2)(D).

3 IRC Section 168(e)(3)(E)(iv).