As you may know, the much
publicized Payroll Tax Holiday was extended just prior to Christmas
day. With IR-2011-124, the IRS officially made the following release:
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704.544.8429
15720 John J Delaney Drive, Suite 400 Charlotte, NC 28277 704.544.8429 info@mcarthurco.com
As you may know, the much
publicized Payroll Tax Holiday was extended just prior to Christmas
day. With IR-2011-124, the IRS officially made the following release:
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What is qualified real property for expensing purposes? Qualified real property is:
(A) qualified leasehold improvement property described in Code Sec. 168(e)(6)
(B) qualified restaurant property described in Code Sec. 168(e)(7)
(C) qualified retail improvement property described in Code Sec. 168(e)(8)
The qualified property must be depreciable, acquired for use in the active conduct of a trade or business, and can't be certain ineligible property.
Qualified Leasehold Improvement Property
As one of the above categories that qualifies as qualified real property component, qualified leasehold improvements are a hot button topic with many of our clients as they look to improve and grow their business. A qualified leasehold improvement property is an interior building improvement that qualifies for bonus first-year depreciation, except that if a lessor makes an improvement that is a qualified leasehold improvement, it can't be qualified leasehold improvement property to any subsequent owner, subject to exceptions.
In general, qualified leasehold improvement property includes interior improvements to a building if:
(1) The improvement is Code Sec. 1250 property.
(2) The improvement is made “under or pursuant to a lease”
(3) The portion of the building is to be occupied exclusively by the lessee
(4) The improvement is placed in service more than three years after the date the building was first placed in service.
The Code doesn't define what types of building improvements are eligible to be treated as qualified leasehold improvement property. Rather, it lists the types of property that can't be so treated. Under Code Sec. 168(k)(3)(B), qualified leasehold improvement property does not include any improvement for which the expense is attributable to:
the enlargement of the building,
any elevator or escalator,
any structural component benefiting a common area, and
the internal structural framework of the building.
What kinds of improvements are qualified leasehold improvements after eliminating those that are ineligible? The following types of improvements would appear to qualify, if they benefit the tenant's space only rather than a common area:
(1) electrical or plumbing systems (including a sprinkler system);
(2) permanently installed lighting fixtures; and
Two breaks apply to qualified leasehold improvement property bought and placed in service this year. It qualifies for up to $250,000 of expensing under Code Sec. 179, and there's a 100% bonus first-year depreciation allowance under Code Sec. 168(k)(2)(A) for the portion of such property that is not expensed.
Is it Real or Personal?
A number of assets installed in commercial buildings are personal property depreciable over five or seven years under MACRS. As a result, these assets are subject to the general expensing rules for personal property, rather than the more-restrictive rules for qualified real property. Shorter-lived assets also are potentially eligible for the bonus first-year depreciation allowance if bought and placed in service this year. These shorter-lived assets include carpeting, movable and removable partitions, and electrical and plumbing equipment necessary for the operation of specialized equipment (rather than for overall building maintenance and operation).
Remember the first-time homebuyer credit? Those that took advantage of that must live in the home as a primary residence for three years. If you convert this to a rental or non-primary residence less than three years from purchase, you will have to pay the credit back. So before you put your home on the market, or put a rental ad in the paper, be sure that you have owned the home for at least three years to avoid repayment.
Check out this publication from the IRS on Selling Your Home: http://http://www.irs.gov/publications/p523/ar01.html
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To find out more about what expenses are deductible, visit www.irs.gov or consult with your CPA.
704.544.8429
The audit rates for business returns were as follows:
Penalties. IRS assessed 27.1 million civil penalties against individual taxpayers. Of the 2010 assessments, the "top three" penalties in percentage terms were 57.3% for failure to pay, 27.3% for underpayment of estimated tax, and 13% for delinquency. On the business side, there were a total of 1,145,931 civil penalty assessments and 42.1% of these assessments were for either failure to pay or underpayment of estimated tax.
Criminal Cases. IRS initiated 4,706 criminal investigations in 2010 There were 3,034 referrals for prosecution and 2,184 convictions. Of those sentences, 81.5% were incarcerated (a term that includes imprisonment, home confinement, electronic monitoring, or a combination thereof).
For more direct access to related information, please follow the 2010 Data Book (Pub 55B) link: http://www.irs.gove/pub/irs-soi/10databk.pdf
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