The IRS provided guidance (Notice 2013-59) on the application of Section 179(f), as extended by the American Taxpayer Relief Act of 2012 (ATRA), to qualified real property.
Specifically, the notice provides guidance on the election to apply Section 179(f) by filing an original or amended tax return; carrying over a 2010 or 2011 disallowed Section 179 deduction; allocating the carryover amount where the taxpayer elects to expense only qualified real property, or qualified real property and other property; and using allocation methodologies for determining the portion of the gain that can be attributed to Section 1245 property when qualified real property is sold or disposed of.
Section 179(a) allows taxpayers to elect to treat the costs of any Section 179 property as an expense for the taxable year the property is placed in service. The deduction provided under Section 179 is subject to three limitations: (1) a dollar limitation on the aggregate costs of Section 179 property that can be treated as an expense under Section 179, (2) a reduction equal to the amount by which Section 179 property exceeds certain amounts (depending on the year the property was placed in service) and (3) a limitation to the taxpayer's taxable income that is derived from the active conduct of any trade or business. Section 179 provides for a carryover of amounts disallowed under the taxable income limitation.
In general, Section 179 property includes tangible property that is subject to depreciation and purchased for use in the active conduct of a trade or business, or for certain computer software that is acquired by purchase for use in the active conduct of a trade or business. If a taxpayer elects to apply Section 179(f), Section 179 property also includes qualified real property. Before ATRA was enacted, Section 179(f) applied to qualified real property placed in service in any taxable year beginning in 2010 or 2011. ATRA extended the application of Section 179(f) to qualified real property placed in service in any taxable year beginning in 2010 through 2013.
Before ATRA was enacted, if taxpayers elected to apply Section 179(f) and to expense under Section 179(a) the costs of qualified real property placed in service during any taxable year beginning in 2010 or 2011, they could not carry over to any taxable year beginning after 2011 the amount of any costs of such property that was disallowed as a Section 179 deduction under the taxable income limitation. ATRA extended this carryover limitation to 2013.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
