Assets “Placed-in-Service” Major Year-End Planning Opportunity– December 03, 2013 by Adam Hill

The American Taxpayer Relief Act passed in January 2013 extended many key business and individual tax provisions through the end of this year. The extensions allow for significant benefits, if you plan accordingly, especially in regards to capitalized property placed in service in 2013.

Businesses can benefit from 50 percent bonus depreciation for certain assets placed in service before January 1, 2014. This provides an opportunity to write off half of your qualified purchases made in 2013 that have a 20-year useful life or less. For real estate entities, when you combine this with the 15-year recovery period for qualified leasehold improvements, qualified retail improvements and qualified restaurant property, which all expire at the end of 2013, accelerating tenant build-outs into 2013 could lead to substantial benefits. Unlike other depreciation methods, under which half-year or mid-quarter conventions may be required, a taxpayer is entitled to the full 50 percent bonus depreciation regardless of when during the year the asset is placed into service. As a result, year-end qualifying purchases can provide an almost immediate “cash return” due to tax savings, even when factoring in the cost of business loans to finance a portion of those purchases.

Qualified property includes the following:

  • Qualified restaurant property is any Internal Revenue Code Sec. 1250 property that is a building or an improvement to a building. More than 50 percent of the building’s square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals.
  • Qualified leasehold improvement property is any improvement made by the lessor or lessee under or pursuant to the terms of a lease to an interior part of a building that is nonresidential real property more than three years old.
  • Qualified retail improvement property is any improvement to an interior portion of nonresidential real property that has been in service for more than three years. The improved interior portion must be open to the general public and used in the retail trade or business of selling tangible personal property.

Another provision extended through 2013 is Section 179 expensing, which can be maximized at $500,000 and is available for all assets, new or used, but will be reduced once total additions exceed $2 million. Qualified real property for Section 179 expensing purposes is limited to $250,000 and includes qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property. Section 179 expense is scheduled to decrease to $25,000 in 2014, so if you are considering a purchase in the first quarter of 2014, you should consider the potential tax benefits of moving the purchase into 2013.

Contact Adam Hill at ahill@cohencpa.com for more information.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.