2016 Section 179 Depreciation Deductions for Commercial Real Estate Improvements

2016 Section 179 Depreciation Deductions for Commercial Real Estate Improvements

Polk CPA, Commercial Real Estate Michigan

As part of the “PATH” Act of 2015, Protecting Americans from Tax Hikes, the depreciation rules for 2016 Section 179 property was liberalized related to commercial real estate improvements.

For qualified real property improvements placed in service after December 31, 2015, the Act made permanent the annual limitation for section 179 expensing to a maximum of $500,000 and the phase-out amount rises to $2,010,000.  Both of these amounts are indexed annually for inflation. “Qualified real property improvements” is property classified as (1) qualified leasehold improvement property, (2) qualified retail improvement property or (3) qualified restaurant improvements.

In general, qualified leasehold improvement property is any section 1250 property, made under or pursuant to a lease between unrelated persons, improvement made for benefit of tenant’s space only, and the improvement is placed in service three years after the date the building was first placed in service.  Some of the types of improvements not subject to Section 179 depreciation is are the enlargement of the building, any elevator or escalator, structural component benefiting a common area and the internal structural framework of the building.

Qualified retail improvement property is any improvement to a non residential building that is generally open to the public and used in a retail trade or business of selling tangible personal property to the general public and the improvement is placed in service more than three years after the building was first placed in service.  The same exceptions apply to the type of improvements not subject to Section 179 depreciation for qualified retail improvement property as qualified leasehold improvement property.

Qualified restaurant property is any Section 1250 property which is a building or improvement to a building if more than 50% of the building square footage is devoted to preparation of and seating for on-premises consumption of prepare foods.

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