Tax Treatment

Forum|Forum|6 years ago
September 4, 2019
10 replies
49 views

I acquired a exiting food franchise business. At the time the purchase, the purchase price $ 200,000 was divided between $ 50,000 equipment and 100,000 leasehold improvement. Can I take section 179 expense on the leasehold improvements?

Thanks!

Anonymous_

Level 15

You should be able to expense the cost.

See https://www.irs.gov/newsroom/new-rules-and-limitations-for-depreciation-and-expensing-under-the-tax-cuts-and-jobs-act

However, note that you will need sufficient net profit (taxable income) to cover the expense.

See https://www.irs.gov/pub/irs-drop/rp-19-08.pdf

Carl

Level 11

Can I take section 179 expense on the leasehold improvements?

It only makes sense if you have $100,000 of net profit, after all other deductions, from which you can actually take the deduction thus reducing your taxable income. While not impossible, I don't see that happening with any franchise unless it's a pot shop in Colorado.

Anonymous_

Level 15

It is only allowable if there is $100,000 of net profit (taxable income) per Section 179(b)(3)(A).

So, @Icecream you need at least $100k for Section 179 expensing.

helpfuluser

Level 4

The prior answers aren't complete, and the omitted rules tend to favor an election under 179. So the poster really should consider a 179 election, if one's available.

Assuming the leasehold improvements are eligible for 179 expensing, the limitation on any deduction is taxable income from *any* active trade or business, including employment. So you'd want to look for $100k of taxable income from *all* such business activities, including W-2 wages, not just from the restaurant franchise.

Also, any excess that's not allowed in the first year is carried forward for use in future years. So the hypothetical deduction of $100k offsets the next $100k of taxable income from a T or B, whether earned this year or in future years. If you're not limited under 179(b)(1) and (2), the standard advice is to consider a 179 election even if there's no immediate tax benefit. This outcome is better than depreciation over a longer schedule, or even 168(k) expensing (assuming a legislative fix, which seems unlikely), since 179 is immediate and the carryforward is not subject to the limitations of 172.