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Section 179 deductions: up against the wall

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. If someone purchased a residential or commercial rental property in 2010, does he qualify for the Section 179 deduction for leasehold improvements included in the purchase price? E.E., Norwalk, Calif.

A. No. The Section 179 deduction doesn’t apply to existing leasehold improvements that are included in a property acquisition. It applies only to improvements that are made after you own the property. For this purpose, qualified leasehold improvements are:

  • Interior improvements made to leased nonresidential real property
  • Occupied exclusively by the lessee or sub-lessee
  • Placed in service more than three years after the building was first placed in service
  • Cannot constitute an enlargement of the building, nor can it be an elevator, escalator, a structural component benefiting a common area, or an interior structural component.

Tip: The Section 179 deduction for qualified leasehold improvements is limited to $250,000, and the usual Section 179 deduction limitation rules apply.

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