Sec 179 Write-Offs

Summary:

The cost of a real property leasehold improvement generally
has to be depreciated over a 39 year recovery period. However, if expenditures
can be properly classified as tangible, personal, movable, non-real estate
property, they may qualify to be deducted currently. This can provide a
tremendous tax benefits.

The analysis used to
determine which costs can be classified as personal property rather than real
property is referred to as "component depreciation" analysis. The foundation
for this is based on the law that had applied years ago for the determination
of what property qualified for the investment tax credit under prior law Code
Section 48. Hospital Corp. of America & Subs. v. Comr., 109 T.C. 21 (1997).  Structural components of a building don't qualify for more
rapid depreciation or Section 179 expensing. Structural components relate to
the operation and maintenance of a building. Treas. Reg. Sec. 1.48-1(e). These
include:

√ Land
√ Inherently
permanent structures
√ Walls
√ Doors
and door locks. Treas. Reg. Sec. 1.48-1(e)(2); FSA 200203009
√ Windows
√ Floors,
such as permanent tiling
√ Acoustical
ceilings. Metro Nat'l Corp. v. Comr., 52 T.C.M. 1440 (1987)
√ Central
air conditioning and heating systems
√ Fire
escapes
√ Stairs
√ Sprinkler
systems
√ Basic affixed electrical wiring, wall outlets and
general lighting
√ General Lighting
√ General plumbing

Non-structural components
and personal property can qualify for more favorable tax benefits.  Structural components that don't relate
to the operation and maintenance of a building as a building may qualify. These
include 5 or 7 year recovery periods, rather than 39 years, and the potential
for immediate deduction under Section 179. These can include:

√ Movable
partitions. Rev. Rul. 75-178, 1975-1 C.B. 9
√ Equipment
and machinery used to maintain temperature or humidity requirements (e.g., for
food preparation)
√ Removable air-conditioning
equipment. Scott Paper Co.,
74 T.C. 137
√ Computers and peripheral
equipment and wiring
√ Smart board and related wiring
and equipment
√ Special removable lighting
√ Removable kitchen equipment and furnishings
√ Telephone equipment and wiring, including wiring
related to intercom, dictation and call systems. Hospital Crop. Of America
v. Comr.
√ Special electrical wiring and plumbing hook-ups
relating to particular equipment or function. This would include electrical
loads for particular items of business equipment
√ Kitchen
piping, plumbing connections, dishwashers, etc
√ Costs
that relate to the provision of services rather than building functions
√ Removable carpeting. Rev. Rul. 67-349
√ Vinyl wall covering
√ Removable
floor tiles, or other floor coverings that are not an integral part of the
floor itself
√ Removable ceiling treatments
√ Signs and ornamentation
√ Furniture
and equipment
√ Removable shelving.

A number of factors can be
considered in determining whether property qualifies for the more favorable
treatment:

√ Manner in which the property is attached to the
building. It should not be permanently attached
√ The
property is inherently moveable
√ Size, weight and
construction of the property
√ The type of
equipment and number of people required to move the property
√  The property or similar property has been moved in
the past
√ Facts support that the property may not stay in
place permanently
√ The property was not designed to
stay in place permanently. L.L. Bean, Inc. v. Comr., T.C. Memo 1997-175, aff'd 145 F.3d 53 (1^st
Cir. 1998)
√
The cost, time and difficulty of
moving the property
√ Little damage will be done to
the property when moved
√ Little damage
will be done to the building when the property is removed
√ The property could readily be re-used if moved.

To secure your write-offs you need to
corroborate the allocation. You might use an engineering and cost analysis of
construction records, engineering and cost estimation (when actual records are
not available), survey of contractor data, or other estimates.