Exciting news for the commercial real estate industry-

1. Section 179 depreciation cap of $500,000 has been retroactively  extended and made permanent.

  • The $2 million phase-out has been increased for qualified purchases to $2,010,000.
  • The entire $500,000 depreciation cap is now available for qualified real property.

Qualified Property is-

  • Qualified leasehold improvements-
  1. In general would be any improvement to an interior portion of a building with is nonresidential realty and is:
  • Code Sec. 1250 property
  • Made pursuant to a lease 
  • Portion of a building is to be occupied by the lessee.
  • Improvement is placed in service more than 3 years after building is placed in service.
  • The improvement can't be attributed to the following:
  1. Enlargement of the building 
  2. Any elevator or escalator 
  3. Structural component benefitting a common area.
  4. Internal structure framework to the building.
  • The following improvements would appear to qualify:
  1. Electrical or plumbing systems (including sprinkler system).
  2. Permanently installed lighting systems 
  3. Ceiling and doors
  4. Non-load-bearing walls

Qualified retail improvement property-

  • Portion of building that is open to the general public and used in the retail trade or business of selling tangible personal property to the public.
  • Includes establishments primarily engaged in sale of goods, such as grocery stores, clothing stores, hardware stores and convenience stores. 

Qualified restaurant property-

  • Is Code Sec. 1250 property which is building or an improvement to a building and if more than 50 percent of the building's square footage is devoted to preparation of, and seating for on-premises consumption of, prepared meals.

2. Bonus Depreciation is available for any tangible (real or personal) property with MACRS class life of 20 years or less (3, 5, 10, 15, 20).

  • Cost segregation report is important to break out any other 5, 7, or 15-year property connected with real estate.

In Conclusion- the cost of commercial real estate improvements is generally recovered over a painfully long period of 39 years via straight line depreciation.

However, for specially defined categories of realty improvements, commercial real estate owners may be entitled to 2 major tax breaks-

  • Expensing under Section 179 - up to $500,000.
  • Bonus 1st year depreciation of the portion of the cost of real property that isn't or can't be expensed; and a relatively short 15-year recovery period of the cost that isn't or can't be expensed. 

Depreciation expensing rules have been liberalized for qualifying real estate improvements the benefit of commercial real estate owners. 

Contact us and we will assist you in determining the applicable 2016 benefit to you.