Tax Treatment

[Icecream]

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!

[tagteam]

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-...

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]

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.

[tagteam]

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]

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.

[Critter]

Sitting down with a local tax professional would be a wise choice so you can get educated on all the facets of the income tax laws that will effect your business and to do some tax planning for future years as what you do today can effect the future. You didn't even mention what kind of business you have for income tax purposes and planning for a C-corp/S-corp/Partnership/Sole proprietor would have very different approaches and they all effect your personal tax return in different ways ... too many variables to discuss well on this forum ... seek local professional guidance.

[helpfuluser]

Well, sure. But that doesn't change the fact that the first three posts reached a conclusion that's likely the opposite of what a good local tax professional would say. Assuming 179's even available.

[tagteam]

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@helpfuluser wrote:

Well, sure. But that doesn't change the fact that the first three posts reached a conclusion that's likely the opposite of what a good local tax professional would say. Assuming 179's even available.

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First of all, you have no idea what a "good tax professional would say" since there is absolutely no possible way you could know ALL good tax professionals and your posts here represent YOUR opinion of the law and nothing more.

Next, the posts above were essentially made contingent upon Section 179 being available and also linked to and IRS topic on both Section 179 and bonus depreciation.

Further, you have a really nasty habit of posting answers to posts that have already been answered and, in some cases, are WEEKS old (as is this one). You need to stop that; it is not helpful (or change your username to "unhelpfuluser".

Finally, QUIT (@) TAGGING ME! I HAVE ZERO INTEREST IN YOUR OPINION.

[helpfuluser]

@tagteam, if 179 is available and elected, that's $100k of current deductions available today, versus $2,500 of deductions annually for 39 years. That difference can make or break a new business. So I think the entire rule should be out there, rather than just bits and pieces. Don't take it personally.

[tagteam]

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@helpfuluser wrote:

@tagteam, if 179 is available and elected, that's $100k of current deductions available today, versus $2,500 of deductions annually for 39 years. That difference can make or break a new business. So I think the entire rule should be out there, rather than just bits and pieces. Don't take it personally.

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We simply disagree on certain tax issues but, regardless, YOU are the troll here.

I asked you to stop tagging me and how do you respond? By tagging me again. Feel free to stop now. Thanks!

[helpfuluser]

Maybe. But it's pretty troll-y to pretend like 179(b)(3)(B) doesn't exist, or that its existence is a matter of personal opinion.