Guidance Issued on Application of Section 179 Expense for Qualified Real Property

Sept. 19, 2013

The IRS recently released Notice 2013-59 clarifying the application of Section 179 expense to qualified leasehold, restaurant, and retail property (qualified real property) placed in service between 2010 and 2013. During those tax years, Section 179 expense is available for up to $500,000 of property ($250,000 for qualified real property) placed in service each year. The deduction is available if a business has total purchases of tangible personal property and qualifying real property that do not exceed $2 million. The deduction phases out for total asset purchases between $2 million and $2.5 million.

The notice provides taxpayers who file an amended federal income tax return a limited opportunity to claim Section 179 expense for qualified real property.

The notice also gives guidance on the treatment of the sale of qualified real property for which Section 179 expense was claimed. As a general rule, the sale of real property does not result in ordinary income. However, when Section 179 expense is claimed on qualified real property, any gain on the sale up to the amount of the Section 179 expense must be recaptured as ordinary income.

Companies that claimed Section 179 expense on qualified real property should identify what impact Notice 2013-59 might have on their federal income tax liability. Companies that did not claim Section 179 expense for qualified real property should consider the benefits of amending their 2010-2012 returns.

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