Taking Advantage of Tax Provisions

By David Thaw, Gumbiner Savett

New legislation providing tax incentives for small businesses signed into law by President Obama includes a number of significant tax provisions for businesses to aid in the U.S economy's recovery. The Small Business Jobs Act of 2010 allows businesses to immediately write off much of the cost of capital investments, instead of having to depreciate them over a period of time.

New legislation providing tax incentives for small businesses signed into law by President Obama includes a number of significant tax provisions for businesses to aid in the U.S economy’s recovery. The Small Business Jobs Act of 2010 allows businesses to immediately write off much of the cost of capital investments, instead of having to depreciate them over a period of time.

• Qualified real property: For the first time, qualified real property can be expensed up to $250,000 for the years 2010 and 2011, subject to limitations. Qualified real property includes leasehold improvements of a tenant occupied space which are not classified as tangible personal property, and improvements to an interior of a building open to the public and used in the retail trade. Qualified leasehold improvements and qualified retail improvement property do not include any improvement which is attributable to the enlargement, or structural components, of the building. The property that, in general, may qualify as retail improvement property and qualified leasehold improvements includes new or remodeled, but not limited to, ceilings, floors, doors, partition walls, windows, and floor coverings.

For instance, a landlord can provide a construction allowance to a tenant to improve the leased 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 act, the landlord would have not been able to expense any costs.

• Increased Immediate Expensing: An owner-operator may purchase new computers, lighting fixtures and office furnishings to improve and update its business operations. Under the act, subject to certain limitations, he may deduct $500,000 of the capital investment instead of the former $250,000 deduction. This immediate expensing opportunity will be in place for years 2010 and 2011.

• First Year Bonus Depreciation: A taxpayer may claim 50 percent first-year bonus depreciation on the cost of qualified property when placed in service. Bonus depreciation may be taken as additional depreciation on qualified property after having expensed immediately part of its cost as illustrated below in the example. Qualified property generally includes tangible personal property such as, but not limited to, computers, fixtures and office furnishings.

For example, a landlord who installs show cases, wall display units and buys computers for $600,000 may expense $550,000 by taking the benefit of 50 percent bonus depreciation. Under The Act, first year bonus depreciation has been extended for another year to December 31, 2010.

These tax inducements present an excellent opportunity to develop, improve or acquire real and personal property.