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Tax relief laws could give US retail a shot in the arm

Gumbiner Savett Inc. US President Obama has signed into law the Small Business Jobs Act of 2010 and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 . These cuts provide tax incentives that allow businesses to immediately write off much of the cost of investments immediately, instead of having to depreciate them over time. The option to do this could be very beneficial to the retail industry.

Property expensing

Qualified real property up to $250,000 can be claimed for the years 2010 and 2011, subject to limitations under the acts.  This includes leasehold improvements of tenant occupied space that are not classified as tangible personal property, and retail improvement property, which consists of improvements to the interior of a building open to the public and used in the retail trade. The property that, in general, may qualify includes new or remodeled- but not limited to- ceilings, floors, doors, partition walls, windows, and floor coverings.

This is an excellent opportunity for landlords and tenants to make improvements. For instance, a landlord can provide a construction allowance to a tenant to improve the leased retail space.  The tenant makes qualified leasehold improvements by putting in new revolving doors, flooring and wall coverings.  The landlord may write off $250,000 of qualified leasehold improvements.  Prior to the acts, the landlord would have not been able to claim any costs.

Personal Property Expensing

A landlord may purchase computers, lighting fixtures, and office furnishings to improve its business.  Under the acts, he may immediately deduct $500,000, subject to limitations, of the cost of certain tangible personal property, instead of the former $250,000 deduction, without having to depreciate it over a longer time. This provision will only be in place for 2010 and 2011.  A maximum deduction of $125,000, reduced dollar-for-dollar for cost in excess of $500,000, will be available for 2012.

First Year Bonus Depreciation

A taxpayer may claim 100% first year bonus depreciation on the cost of qualified property when purchased and placed in service after 8 September 2010 and before 1 January 2012.   Fifty percent first-year bonus depreciation may be taken for assets acquired and placed in service during 2010, prior to 9 September 2010.  Bonus depreciation may be taken as additional depreciation on qualified property after having expensed immediately part of its cost.

Qualified property generally includes tangible personal property such as computers, retail fixtures, retail accessories, window treatments and decorative interior lighting fixtures.  For example, a landlord who installs show cases and wall display units and buys computers for $600,000, may  claim an  extra $50,000 by taking 50% bonus depreciation in addition to expensing $500,000 of the total cost.

These tax inducements present an excellent opportunity to improve real property.

This article appeared in Estates Gazette magazine, Spring Issue. You can find the article on here on page 6.

By | 2017-05-24T13:42:48+00:00 April 8th, 2011|Articles, Real Estate, Tax Planning|0 Comments

About the Author:

David Thaw, CPA, MST is a Shareholder at Gumbiner Savett Inc. where he currently heads the Tax Department. David has over 20 years of experience in public accounting and works with mid- and large-cap companies in the real estate, technology, manufacturing, distribution, and professional services fields.
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