Expense Qualified Real Property up to $250,000 in 2010 and 2011

The Small business Jobs Act of 2010, for the first time, allows first year expensing of certain real property. For any tax year beginning in 2010 or 2011, a taxpayer may elect to expense up to $250,000 of qualified real property.

The qualified property must be depreciable, acquired for use in the active conduct of a trade or business, and cannot be certain ineligible property (i.e., used for lodging ,  used outside the U.S., used by governmental units, foreign persons or entities, and certain tax-exempt organizations, air conditioning or heating units).

There are three types of qualified real property:

     1.   Qualified leasehold improvement property: Qualified leaseholder improvements include any improvement to the interior of non –residential building if:

–          The improvement is made pursuant to a valid lease

–          Such portion is occupied exclusively by the lessee or sublessee (not common area)

–          The improvement is placed in service  more than 3 years after the date the building was first placed in service

            A lease between relate d persons does not qualify (i. e., a lease between a taxpayer and his more than 50% owned business).

     2.   Qualified Restaurant Property: Qualified restaurant property includes a building or an improvement to a building if more than 50%of the building’s square footage is devoted       to preparation of, and seating for on-premises consumption of, prepared meals. 

     3.  Qualified Retail Improvement Property: Qualified retail improvement property means any improvement to an interior portion of a building which is nonresidential real property if:

–          Such portion is open to the general public and is used in the retail trade or business of selling tangible personal property to the general public, and

–          Such improvement is placed in service more than 3 years after the date the building was first placed in service.

Qualified retail improvement property, like qualified leasehold property, may NOT include: any enlargement of the building, any elevator or escalator, any structural component benefitting a common area, or the internal framework or structure of the building.

Taxable Income Limitation: The amount of Section 179 expense is limited to the business’s taxable income for the year. Any disallowed expense is carried forward. Disallowed Section 179 expense attributable to qualified real property cannot be carried over to a tax year beginning after 2011. Any expense carryforward that cannot be used in 2011 will be treated as property placed in service at the beginning of 2011, and will be depreciated through the property’s useful life.

As always, please see your tax professional for guidance on your circumstances.

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