The Internal Revenue Service has issued Notice 2013-59, 2013-40 IRB 09/10/2013 regarding a special IRC §179 deduction for real property. Real property includes such items as Leasehold Improvements to property that is purchased. In the past you were required to depreciate the property under the Straight Line Method over a period of 15 years. Now you can directly expense these improvements instead of waiting to recover it over that time frame.
This is a major change of events for real estate investors that buy property and hold it for any period of time greater than a year. Typically, investors buy property, and have to fix the property up before they can either rent it or sell it again. Before any structural changes to the property had to be recovered over the long period of 15 years. With this notice, you can now use IRC §179 to expense fix up expenses.
IRC §179 is nothing new. It has been in existence for the 20 years that I have been in practice. The Code Section works whereby you can expense up to $500,000 of certain property that you place in service in any tax year, up to the maximum of $2 million. They play around with this number each year, and it is set to go down to $25,000 in 2014 unless a change is made by Congress.
This new law now opens IRC §1245 property, which was off limits until recently. The guidance states this:
Qualified real property means property that is: (1) of a character subject to an allowance for depreciation; (2) acquired by purchase for use in the taxpayer's active conduct of a trade or business; (3) not described in Code Sec. 50(b) ; and (4) not air conditioning or heating units. In addition, qualified real property must be Code Sec. 1250 property that is: (1) qualified leasehold improvement property as defined in Code Sec. 168(e)(6) , Code Sec. 168(k)(3) , and Reg. § 1.168(k)-1(c) ; (2) certain qualified restaurant property as defined in Code Sec. 168(e)(7) ; or (3) qualified retail improvement property as defined in Code Sec. 168(e)(8) . The maximum amount of qualified real property that may be expensed for any tax year beginning in 2010, 2011, 2012, or 2013 is $250,000. ( Code Sec. 179(f)(3) ) Before ATRA, Code Sec. 179(f) applied to qualified real property placed in service in any tax year beginning in 2010 or 2011. ATRA extended Code Sec. 179(f) to qualified real property placed in service in any tax year beginning in 2010, 2011, 2012, or 2013.
This deduction does not apply to Trusts, Estates, and certain non-qualified property.
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If you have any questions you can email Craig W. Smalley E.A., C.E.P.®, C.T.R.S.®
Admitted to Practice Before the Internal Revenue Service
Certified Estate Planner®
Certified Tax Resolution Specialist®
Author of the books:
- It Starts With an Idea – Tax Tips for Small Businesses
- The Ultimate Real Estate Investor Tax Guide
- The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012
- Everything You Wanted to Know about the IRS – Audits, Appeals and Collections
- Tax Avoidance is Legal! The Complete Guide to Individual Income Tax
- The Complete Guide to the Affordable Care Act’s Tax Provisions
- The Complete Guide to Retirement Plans for Small Businesses
- The Complete Guide to Estate, Gift and Trust Taxation
- The Complete Guide to Hiring an Accountant
- The Complete Guide to Subchapter S-Corporations,
- Free Money
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