Press Room: Tax Release

September 19, 2013

Guidance Provided for Expensing Qualified Real Property

IRS released Notice 2013-59 providing guidance for taxpayers that elect under Sec. 179(f) to expense the costs of certain qualified real property placed in service during any tax year beginning in 2010, 2011, 2012 or 2013.

For these tax years, the general limitation on the amount that can be deducted under Sec. 179 is $500,000 annually. Also, for these tax years, a taxpayer has been permitted under Sec. 179(f) to apply up to $250,000 of its annual limitation to certain real estate assets. Qualifying real estate is property that is qualified leasehold improvement property, qualified restaurant property, or qualified retail improvement property. Such property would, as part of a building, otherwise not be eligible for deduction under Sec. 179.

The $500,000 limit is reduced, dollar for dollar, when the total amount of Sec. 179 property placed in service in a tax year exceeds $2 million. Also, while a taxpayer can elect to apply Sec. 179 to up to $500,000 a year, the amount deductible under Sec. 179 for any tax year is limited to the taxpayer’s taxable income from active trades or businesses; any excess is carried over to later years.

The Notice also provides allocation methods for determining Sec. 1245 and Sec. 1250 recapture upon the disposition of qualified real property when the basis has been reduced by the Sec. 179 deduction.

This election allows small businesses to elect a current deduction for qualifying property additions and is particularly beneficial to retailers.