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If Walls Could Talk


Retaining walls: moved to15-year. Wiring for equipment: moved to 5-year. Decorative moveable walls: moved to 5-year. An increased return on your investment in this abysmal economy: PRICELESS!  Your walls know that with provisions like Bonus Depreciation, Qualified Leasehold Improvements (QLI), Qualified Retail Improvements (QRI2) and Qualified Restaurant Improvements (QRI) currently set to expire as of December 31, 2013, the time to initiate a cost segregation study is NOW!

Recent issues of The Bottom Line have outlined the various tax changes proposed by legislators, and they range from rate increases to the elimination of current tax breaks. This year end just might be the perfect time to re-examine many of the opportunities still available because for many, it could take some of the doom and gloom out of the economic picture. Let’s review the four tax-saving regulations that businesses and individuals are guaranteed if accessed in 2013.

  • Bonus depreciation is allowed at the 50% rate on assets with a life of 20-years or less, when 1) the original use starts with that taxpayer, 2) it is QLI, computer software, or water utility property, and 3) it is placed-in-service before December 31, 2013.
  • QLI must be 1) interior improvements to nonresidential real property made pursuant to a lease, 2) that portion of the building must be occupied by the lessee or sublessee, and 3) the improvements must be placed-in-service more than three years after the building was first placed-in-service. This one is eligible for bonus depreciation too!
  • QRI for 2013 must meet only the 50% test; that is more than 50% of the buildings square footage must be devoted to the preparation of, and seating for on-premises consumption of prepared meals. Once you meet this test the entire building can qualify as 15-year QRI property in 2009 with the § 1245 property (5-year assets) qualifying for bonus depreciation. The QRI portion does not get bonus depreciation.
  • QRI2 is restricted to 1) interior improvements to a building which is nonresidential real property, 2) only to those areas open to the public, used in the retail trade or business of selling tangible personal property to the public, and 3) is placed-in-service more than three years after the building is first placed-in-service.

Correctly classifying assets into § 1245 vs. § 1250 using a CSS has always been an effective technique. This is further enhanced by the temporary incentives mentioned above.  Remember 15-year QLI property is eligible for bonus depreciation in 2013.  In addition, QRI gives you a 15-year life for the entire building in 2013. As it stands now, all of these expire on December 31, 2013 and with Congress scrambling to find ways to pay for their trillions in spending, 2013 is the time to act. Discussing the benefits of a cost segregation study with knowledgeable tax and cost segregation engineers makes great sense. Just possibly, the walls to your properties could be telling you not to trust the halls of Congress.