In an effort to get the economy back on the rails again, the 2010 Tax Relief Act permits businesses to claim a 100% depreciation deduction (100% bonus depreciation allowance) in the year that qualifying assets are placed in service. Qualified leasehold improvements clearly are eligible for this special 100% write-off.
Bonus depreciation basics – In general, a leasehold improvement qualifies for the 100% bonus depreciation allowance if it is acquired and placed in service after Sept. 8, 2010 and before Jan. 1, 2012, and the original use of the improvement commences with the taxpayer.
Qualified leasehold improvement property – Generally, qualified leasehold improvement property includes interior improvements to a building which is nonresidential real property if:
(1) The improvement is real property;
(2) The improvement is made to leased property. A lease for this purpose is defined as any grant of a right to use property, either by the lessee, sublessee or lessor of the building portion;
(3) The leased portion of the building is occupied exclusively by the lessee (or sublessee); and
(4) The improvement is placed in service more than 3 years after the date the building was first placed in service.
The following expenditures, however, do not qualify: amounts paid for the enlargement of a building, a structural component that benefits a common area, an elevator or escalator, or the internal structural framework of the building.
Whether you have already made leasehold improvements or are contemplating in doing so, and have questions on how this special write-off can fit into your business planning for 2011, please give this office a call.