2013 Tax Depreciation Deductions for Hospitality Owners

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The “American Taxpayer Relief Act of 2012” reinstated a variety of favorable tax deductions for assets placed in service through December 31, 2013. These tax incentives are valuable for hospitality owners and are not just limited to fixed assets; improvements to buildings and the costs of buildings meeting either the qualified leasehold improvements or qualified restaurant property criteria could be eligible for these advantageous deductions, but you must act quick to take advantage of them.

Below is a summary of the first-year depreciation deductions hospitality owners can take advantage of between now and December 31st 2013, and what the tax law changes are expected to be effective January 1st 2014:

Section 179

Section 179 enables business owners to deduct the full cost of fixed assets acquired and placed into service, including equipment, computers, vehicles, furniture, and fixtures, but excluding real property and most improvements. The deduction can be claimed for acquisitions of both new and used assets.

  • 2013 Tax Law | Up to $500,000 of fixed assets acquired are eligible for the immediate deduction. The amount of Section 179 that can be claimed begins to phase out when $2,000,000 or more fixed assets are placed into service.
  • 2014 Tax Law | Only $25,000 of depreciable assets acquired are eligible for the immediate deduction. The amount of Section 179 that can be claimed begins to phase out when $200,000 or more fixed assets are placed into service.

50% Bonus Depreciation

50% bonus depreciation enables business owners to deduct half the cost of a fixed asset acquired and placed into service. Qualifying fixed assets must be brand new and may include equipment, computers, vehicles, furniture, fixtures, and qualified leasehold improvements.

Qualified Leasehold Improvements

A qualified leasehold improvement is any improvement meeting all criteria below:

  • To an interior portion of a building
  • Nonresidential property
  • Pursuant to a lease
  • In service more than three years after the date the building was first placed into service
  • 2013 Tax Law | Fifty percent bonus depreciation can be claimed on all qualifying leasehold improvements acquired and placed into service after December 31, 2013 and before January 1, 2014. There is no limitation on the amount of bonus depreciation that can be claimed. Up to $250,000 of Section 179 can also be claimed. Any cost basis that remains is depreciated over 15 years.
  • 2014 Tax Law | Bonus depreciation is repealed and Section 179 cannot be claimed on qualified leasehold improvements. All leasehold improvements are depreciated over 39 years.

Qualified Restaurant Property

Qualified restaurant property is a building or improvements to a building where 50% of the building’s square footage is devoted to the preparation of, and seating for, on-premises consumption of prepared meals. Even if a restaurant is operating in a portion of a building or a space in a shopping center, it’s 50% of the entire building that must be devoted to the restaurant’s use in order for the building or improvement additions to meet the criteria for a qualified restaurant property. Establishments that will benefit from this provision are primarily stand-alone restaurants.

  • 2013 Tax Law | Up to $250,000 of Section 179 can be claimed. Qualified restaurant property that also meets the criteria of qualified leasehold improvements can qualify for unlimited 50% bonus depreciation. Any remaining cost basis that remains is depreciated over 15 years.
  • 2014 Tax Law | Neither Section 179 nor bonus depreciation can be claimed on qualified restaurant property. All qualified restaurant property is depreciated over 39 years.

For more information about tax depreciation deductions your restaurant can take advantage of, please contact Aaron Boker, CPA of Aronson LLC at 240-364-2582.

About Aaron Boker

Aaron Boker has written 12 post in this blog.

As a senior manager in Aronson LLC's Tax Services Group, Aaron Boker is a proactive advocate for his clients, which include restaurants, hotels, C corporations, S corporations, partnerships, individuals, trusts, and private foundations. In addition to his tax compliance and planning work, he is committed to building the firm's hospitality industry practice and has a deep understanding of the unique business issues faced by companies in this market. Aaron's clients benefit from his dedication to excellent service and his commitment to his work as part of a results-driven tax team committed to staying at the forefront of the profession.

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