Historically, real property costs have been ineligible for the Section 179 deduction privilege. However, the Small Business Jobs Act of 2010 dramatically changed the deal by allowing Section 179 deductions for up to $250,000 of qualified real property costs for tax years beginning in 2010 and 2011. Somewhat surprisingly, the fiscal cliff legislation restored the $250,000 real property deduction privilege for tax years beginning in 2012 and 2013. [See IRC Sec. 179(f).] Here are the details.
Eligible Costs. Qualified real property costs include:
• Qualified leasehold improvement property costs, as defined by IRC Sec. 168(e)(6) . The definition covers only nonresidential building interior costs, and certain interior costs are excluded (such as the cost of elevators, escalators, enlargements, structural components benefiting common areas, and any interior structural framework of the building). The improvements must be placed in service more than three years after the date the building was first placed in service.
• Qualified retail improvement property costs, as defined by IRC Sec. 168(e)(8) . The definition covers only nonresidential building interior costs for a building that is open to the general public and used in a retail business of selling tangible personal property to the general public. Certain interior costs are excluded (such as the cost of elevators, escalators, enlargements, structural components benefiting common areas, and any interior structural framework of the building). The improvements must be placed in service more than three years after the date the building was first placed in service.
Coordination with Overall $500,000 Allowance. Qualified real property costs that are expensed under this provision reduce the overall $500,000 maximum Section 179 allowance. In other words, the $250,000 allowance for qualified real property costs is a subset of the overall $500,000 allowance rather than an addition to the overall allowance.
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