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Leasehold Improvements

Technical topics regarding tax preparation.
#1
jon  
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Client moved and leased space in a different location and had to pay for his leasehold improvements which cost about $100,000, sound proofing for a recording studio. Is 179 the only option now, is there any new information to come out about the old 15 year life or is everything for commercial going to 39? This all happened in 2018. The leased space is in a large building and he has one of the smaller spaces, no heating or a/c involved in his leaseholds charged.
 

#2
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I understand that there is a correction bill stuck in congress somewhere, but I doubt its going anywhere.
 

#3
Coddington  
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It is a new Congress and I haven't seen a new corrections bill introduced, (though I may have missed it). Soundproofing will involve both 5-year and QIP assets, usually being a mix of 1245 and 1250 property. For example, glued-on wall panels would generally be 5-year while additional interior insulation that will be left in the space permanently and not re-used would be 39-year QIP.
-Brian
Tax accounting methods and credits consultant for hire.

http://www.coddingtontax.com
 

#4
zl28  
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i thought there was a problem with the language that would preclude the bonus depreciation b/c i think (emphasis on think) the bonus depreciation pertains to assets under 20 years, and that the bill was so rushed, that leasehold improvements language wasn't modified to be 15 in the new law, thereby leaving sec 179....but of course, with 179, can't incur a loss and take the full 179...with bonus that shouldn't be the case

would like to hear form other confirming can take 179 on leasehold improvements
 

#5
Wiles  
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It's here, but my gut says it's not going anywhere.
Tax Technical and Clerical Corrections Act

Can't figure out why Congress did not do this 9 months ago.
 

#6
sjrcpa  
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IRS Tax Tip 2018-68 https://www.irs.gov/newsroom/tax-reform ... nesses-now IRS appears to accept the legislative intent.
 

#7
Wiles  
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sjr, please elaborate
 

#8
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sjrcpa wrote:IRS Tax Tip 2018-68 https://www.irs.gov/newsroom/tax-reform ... nesses-now IRS appears to accept the legislative intent.


That page is talking about changes to the definition of qualified real property for 179.
 

#9
sjrcpa  
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Wiles and Tax Me Up-I was at a seminar yesterday and the speaker-a knowledgable local tax attorney, siad this indicated IRS accepts the legislative intenet that nonstructural improvements are generally 15 year property eligible for 100% bonus depreciation, despite the needed technical correction. I was just passing it on.
 

#10
Wiles  
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Thanks, sjr. Perhaps the speaker is in the know on this. That would be great if we all can get something to rely on before tax season gets rolling. The way it is looking now, with everything going on, we are going to be filing some more extensions this year.
Last edited by Wiles on 11-Jan-2019 3:17pm, edited 1 time in total.
 

#11
WEISSEA  
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See Rev Proc 2019-08
Section 13101(b)(2) of the TCJA amended § 179(f) by defining qualified real property as (1) any qualified improvement
property described in § 168(e)(6) and (2) any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems. These amendments apply to property placed in service in taxable years beginning after December 31, 2017.
The definition of qualified improvement property in § 168(e)(6) is the same definition of that term in § 168(k)(3) as in effect on the day before the date of enactment of the TCJA. Accordingly, see section 4.02 of Rev. Proc. 2017-33 for further guidance on the definition of qualified improvement property;
 

#12
Coddington  
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sjrcpa wrote:Wiles and Tax Me Up-I was at a seminar yesterday and the speaker-a knowledgable local tax attorney, siad this indicated IRS accepts the legislative intenet that nonstructural improvements are generally 15 year property eligible for 100% bonus depreciation, despite the needed technical correction. I was just passing it on.


Tax Me Up is right in surmising that the linked page is about section 179. The link was issued back in May and everything on the page, especially the effective date language, refers to section 179. (The bonus depreciation changes use different effective date language, which vary depending on whether we're looking at section 13201 or 13204 of the TCJA.) Unless something has changed very recently, government panelists from Chief Counsel and Treasury have been very consistent in stating that, absent a technical corrections bill passing, QIP is not 15-year property. This position even made it into the proposed bonus depreciation regs from August. The preamble to the proposed bonus depreciation regs cover this in a roundabout manner.

For property placed in service after December 31, 2017, section 13204 of the Act amended section 168(e) to eliminate the 15-year MACRS property classification for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property, and amended section 168(k) to eliminate qualified improvement property as a specific category of qualified property. Because of the effective date of section 13204 of the Act (property placed in service after December 31, 2017), the proposed regulations provide that MACRS property with a recovery period of 20 years or less includes the following MACRS property that is acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer after September 27, 2017, and before January 1, 2018: (1) Qualified leasehold improvement property; (2) qualified restaurant property that is qualified improvement property; and (3) qualified retail improvement property. For the same reason, the proposed regulations provide that qualified property includes qualified improvement property that is acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer after September 27, 2017, and before January 1, 2018. Further, to account for the statutory amendments to the definition of qualified improvement property made by the Act, the proposed regulations define qualified improvement property for purposes of section 168(k)(3) (before amendment by section 13204 of the Act) and section 168(e)(6) (as amended by section 13204 of the Act).
-Brian
Tax accounting methods and credits consultant for hire.

http://www.coddingtontax.com
 


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