Taking 100% Bonus when Electing out of Business Interest

Technical topics regarding tax preparation.
#1
Posts:
62
Joined:
16-Jan-2018 4:28pm
Location:
DC
Can anyone help me understand whether the following situation is allowed? I've not been able to piece together code references that allow for this but apparently, several CPAs are taking this approach:

A General Partner (GP) has raised money to purchase a large multi-family residential rental property. The GP initiates a cost segregation study and, thanks to 100% bonus depreciation, a large passive loss will be passed to the Limited Partners (LP) and excess loss will be passed to the GP.

GP's CPA wants to elect out of the business interest limitations in year one. The deal is subject to these limitations due to the syndicate rule found in IRC Sec 1256(e)(3)(B).

Electing out, per my understanding, means you must depreciate on the ADS system and each component depreciated on the ADS system is not eligible for 100% bonus depreciation. CPA's answer to this is to depreciation structural improvements on ADS (30 year life) and personal property/land improvements on MACRS.

The result is that the deal can take 100% bonus and elect out of business interest limitations.

Thoughts?
 

#2
Coddington  
Moderator
Posts:
2566
Joined:
21-Apr-2014 8:50pm
Location:
Fort Worth, TX
The other CPA is right. The electing real property trade or business must use ADS for QIP, nonresidential real property, and residential rental property. The 5- and 7-year tangible personal property and the 15-year land improvements remain eligible for bonus depreciation. See section 168(g)(8).

(8) Electing real property trade or business
The property described in this paragraph shall consist of any nonresidential real property, residential rental property, and qualified improvement property held by an electing real property trade or business (as defined in 163(j)(7)(B)).
-Brian

Director of Tax Accounting Methods & Credits
SourceAdvisors.com

Opinions my own.
 

#3
Posts:
62
Joined:
16-Jan-2018 4:28pm
Location:
DC
Thank you!
 

#4
sjrcpa  
Posts:
6471
Joined:
23-Apr-2014 5:27pm
Location:
Maryland
Do you have to change to ADS for real property placed in service in prior years which is being depreciated as 27.5 or 39 year property under MACRS?
If yes, is this an automatically approved change in accounting method?
 

#5
Coddington  
Moderator
Posts:
2566
Joined:
21-Apr-2014 8:50pm
Location:
Fort Worth, TX
Yes, but it's not a method change. It is a change-in-use. See Rev Proc 2019-08.
-Brian

Director of Tax Accounting Methods & Credits
SourceAdvisors.com

Opinions my own.
 

#6
sjrcpa  
Posts:
6471
Joined:
23-Apr-2014 5:27pm
Location:
Maryland
Thank you.
 


Return to Taxation



Who is online

Users browsing this forum: actionbsns, Anderly, davidlat, EZTAX, golfinz, Google [Bot], HowardS, JoJoCPA, jon, JR1, lckent, ManVsTax, MAPCPA60, MilesR, missingdonut, Nilodop, ode923, rbynaker, taoseno, taxgenie, TexasTaxCPA, zl28 and 181 guests