‘Placed in Service’ Ruling - New Depreciation Opportunities for CPA Firms to Bring to Commercial Property Owners

Posted by Jennifer Birkemeier on 3/2/15 9:39 AM

Can you start depreciating a client’s commercial building before their business opens? U.S. District court says yes.

Accelerating_depreciation_deductionsEvery CPA knows that a building is considered placed in service—and thus depreciation begins—when it is open for business. Right?
A recent U.S. district court ruling turned that conventional wisdom on its head, and in turn, gives CPA firms the opportunity to bring good news to their commercial property-owning clients and prospects. In the case of Stine, LLC v. United States, a Louisiana district court found in favor of a taxpayer who argued that his two new retail stores were placed in service as of Dec. 31, 2008, because they both had received certificates of occupancy—despite the fact that neither was open for business.
At stake was the property owner’s ability to take advantage of an accelerated depreciation allowance granted by the Gulf Opportunity Zone Act of 2005. The IRS had disallowed Stine’s depreciation deduction and assessed the building supplies retailer with more than $2 million in taxes for the tax years 2003 through 2008. Stine sought a refund of these taxes.
In supporting Stine’s motion, the Court stated the following (emphasis added):
“…understanding that Congress could have easily expressed that a building be placed in service when open for business leads this court to believe that there is no requirement that a building be open for business in order for it to be placed in service for purposes of a depreciation allowance.”

Did your client buy a commercial building in December? Accelerate tax benefits into 2014.

The Stine finding is a welcome opportunity for commercial building owners and their CPAs who might otherwise have deferred depreciation benefits for 12 months or more because the business had not yet started and therefore, depreciation was not claimed.
As you complete your commercial real estate clients’ 2014 tax returns, keep an eye out for buildings that were purchased, built, or renovated near the end of the year, and consider the benefits of conducting a cost segregation study on that building for the 2014 tax year. If the cost-benefit calculation works out in the client’s favor, then extend or amend that property owner’s return so that you can take advantage of that opportunity to slash the client’s 2014 tax liability.
Need help identifying and taking advantage of tax-minimizing opportunities? Let's talk.

Tags: commercial real estate, Jennifer Birkemeier, placed in service, Accelerating depreciation deductions

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