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Tlynncpa
Level 2

Accelerated depreciation for Leasehold improvements in 2019

Started a business in 2019 and did leasehold improvements to the building I will be leasing over the next 10 years.  I understand these are not eligible for first year depreciation under the TCJA section as they are no longer in the category of 20 years or less.  Depreciation is 39 year correct?

7 Replies
KarenM90
Level 11

Accelerated depreciation for Leasehold improvements in 2019

Yes! If it is commercial property  the IRS depreciates retail and other commercial structures over 39 years.  Residential is 27.5 years.

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Tlynncpa
Level 2

Accelerated depreciation for Leasehold improvements in 2019

I really wish they addressed this in the final regs.

 

Thanks,

Anonymous
Not applicable

Accelerated depreciation for Leasehold improvements in 2019

 
Anonymous
Not applicable

Accelerated depreciation for Leasehold improvements in 2019

maybe not.the TCJA of 2017 changed the rules again. 

if the property is qualified impprovement property IRC 168(e)(6)

6)Qualified improvement property
(A)In general
The term “qualified improvement property” means any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service.

(B)Certain improvements not includedSuch term shall not include any improvement for which the expenditure is attributable to—
(i)the enlargement of the building,
(ii)any elevator or escalator, or
(iii)the internal structural framework of the building.

 

congressional intent was that these assets could be deprecite straight line over 15 years. As macrs property with less than a 20 year life 200% special bonus depreciation could be selected

 

section 179 expensing is avilable under IRC 179(e)

(e)Qualified real propertyFor purposes of this section, the term “qualified real property” means—
(1)any qualified improvement property described in section 168(e)(6), and
(2)any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service:
(A)Roofs.
(B)Heating, ventilation, and air-conditioning property.
(C)Fire protection and alarm systems.
(D)Security systems.

 

heres the rub while it was Congressional intent to make the life 15 years and make it eligible for 100% bonus they actually failed to amend 168(e)(3)(E) - IT DEFINES 15 YEAR PROPERTY.

 

puvb 946 which is the IRS publication for deprecition contains wording as if the code section had been mosified.  not e that even the IRS own publications are not authoritative.  howevr, courts have looked to comgressional intent. 

 

 

the regulation for the bonus was amended 1.168(k)-1

(c) Qualified leasehold improvement property -

(1) In general. For purposes of section 168(k), qualified leasehold improvement property means any improvement, which is section 1250 property, to an interior portion of a building that is nonresidential real property if -

(i) The improvement is made under or pursuant to a lease by the lessee (or any sublessee) of the interior portion, or by the lessor of that interior portion;

(ii) The interior portion of the building is to be occupied exclusively by the lessee (or any sublessee) of that interior portion; and

(iii) The improvement is placed in service more than 3 years after the date the building was first placed in service by any person.

(2) Certain improvements not included. Qualified leasehold improvement property does not include any improvement for which the expenditure is attributable to:

(i) The enlargement of the building;

(ii) Any elevator or escalator;

(iii) Any structural component benefiting a common area; or

(iv) The internal structural framework of the building.

(3) Definitions. For purposes of this paragraph (c), the following definitions apply:

(i) Building has the same meaning as that term is defined in § 1.48-1(e)(1).

(ii) Common area means any portion of a building that is equally available to all users of the building on the same basis for uses that are incidental to the primary use of the building. For example, stairways, hallways, lobbies, common seating areas, interior and exterior pedestrian walkways and pedestrian bridges, loading docks and areas, and rest rooms generally are treated as common areas if they are used by different lessees of a building.

(iii) Elevator and escalator have the same meanings as those terms are defined in § 1.48-1(m)(2).

(iv) Enlargement has the same meaning as that term is defined in § 1.48-12(c)(10).

(v) Internal structural framework has the same meaning as that term is defined in § 1.48-12(b)(3)(i)(D)(iii).

(vi) Lease has the same meaning as that term is defined in section 168(h)(7). In addition, a commitment to enter into a lease is treated as a lease, and the parties to the commitment are treated as lessor and lessee. However, a lease between related persons is not considered a lease. For purposes of the preceding sentence, related persons are -

(A) Members of an affiliated group (as defined in section 1504 and the regulations thereunder); and

(B) Persons having a relationship described in section 267(b) and the regulations thereunder. For purposes of applying section 267(b), the language “80 percent or more” is used instead of “more than 50 percent.”

(vii) Nonresidential real property has the same meaning as that term is defined in section 168(e)(2)(B).

(viii) Structural component has the same meaning as that term is defined in § 1.48-1(e)(2)

 

 

thus if it were me i would use either bonus or 179 and specify a 15 year life. 

 

 

Tlynncpa
Level 2

Accelerated depreciation for Leasehold improvements in 2019

I was reading that but did not see that the final regs addressed that clearly.  

AmeliesUncle
Level 12

Accelerated depreciation for Leasehold improvements in 2019

The CARES Act that passed a couple of weeks ago retroactively changed it to 15 years.   So it now qualifies for Bonus depreciation.

 

The last I checked, the software is not updated for that new change yet, so you will need to wait until the update.  

Tlynncpa
Level 2

Accelerated depreciation for Leasehold improvements in 2019

Do you know if the software has been updated yet?  Thanks,

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