2016 Bonus Depreciation for Commercial Real Estate

2016 Bonus Depreciation for Commercial Real Estate

Polk CPA, Commercial Real Estate MichiganPart of the PATH Act of 2015, bonus depreciation for commercial real estate property improvements has been liberalized for 2016.

Effective for property placed in service after December 31, 2015, a 50% bonus depreciation allowance is available for qualified improvement property instead of just qualified leasehold improvement property. Qualified improvement property is any improvement to the interior portion of a nonresidential building with the improvement placed in service after the building was first placed in service and is not subject to a lease.

The following types of qualified improvements are not subject to the first year bonus depreciation allowance: enlargement of the building, elevators and escalators and interior structure framework of the building.

While qualified leasehold improvement property is subject to 15 year straight line method of depreciation, qualified improvement property is subject to 39 year straight line depreciation method after bonus depreciation allowance.

The phase out of first year bonus depreciation allowance for qualified improvement property is the following:

2016-2017 – 50% first year bonus depreciation allowance

2018 – 40% first year bonus depreciation allowance

2019 – 30% first year bonus depreciation allowance

2020 – 0% first year bonus depreciation allowance

Starting on 1/1/2016, the special 50% first year bonus depreciation allowance is available for qualified retail improvement property and qualified restaurant property.

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