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jgordosea
jgordosea, Enrolled Agent
Category: Finance
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Experience:  Registered Investment Advisor and prior licensure = life and health insurance, mortgage broker
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A client paid $55,800 Dollar Store. The price was 1000

Customer Question

A client paid $55,800 for a Dollar Store. The price was for a 1000 square foot Dollar store type store package be developed in a lease space of around 1000 square feet. The purchase included store fixtures jewelry displays. How much of the $55,800 can
be expensed in the year of purchase?
Submitted: 1 year ago.
Category: Finance
Expert:  PDtax replied 1 year ago.
Hi from Just Answer. I'm PDtax, and can assist.
The project you have in mind requires a review of the lease and purchase contract to identify specific items and the cost allocated to them in the agreements.
I can assist, but not for the price offered.
I will post an Offer to assist, and price it at 1 hour professional services. Accept, and I can look at the agreement copies I will ask to review tonight.
PDtax
Customer: replied 1 year ago.
I don't need an in depth analysis. I just need broad guidance. Specifically, the agreement calls for $10,000 of inventory and $2,000 for a sign. The remaining amounts are for technical advise, and fixtures and finishing up the interior of the store. There's not a breakout for these amounts. Would it be appropriate to capitalize over the life of furniture and fixture in accordance with the IRS guidelines
Expert:  PDtax replied 1 year ago.
Sorry, the cost segregation requires a review of your lease, types of assets, who retains them when the lease expires, term of lease, use of brand, and a host of other issues.
I'm sorry my offer was unacceptable. I will opt out.
Other experts can review your request and advise.
PDtax
Expert:  jgordosea replied 1 year ago.
Greetings,
The expert was correct in what will be needed to properly apply the general rules to the specific situation.
You are correct that if there was a purchase of furniture or fixtures that the store owner owns (and is not only leasing) that those items would be depreciated in the usual manner for furniture or fixtures including bonus depreciation and possible section 179 expense election, if not limited by income.
For items that are qualified leasehold improvements of retail property straight line depreciation over 15 years with the 50% bonus available for the year in service may apply.
http://www.irs.gov/publications/p946/ch03.html
"Qualified leasehold improvement property. Generally, this is any improvement to an interior part of a building that is nonresidential real property, if all the following requirements are met.
The improvement is made under or according to a lease by the lessee (or any sublessee) or the lessor of that part of the building.
That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part.
The improvement is placed in service more than 3 years after the date the building was first placed in service by any person.
The improvement is section 1250 property. See chapter 3 in Publication 544, Sales and Other Dispositions of Assets, for the definition of section 1250 property.
However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following.
The enlargement of the building.
Any elevator or escalator.
Any structural component benefiting a common area.
The internal structural framework of the building."
Of course other items including the franchise may be in the total paid and are section 197 intangibles that must be amortized over 180 months.
http://www.irs.gov/publications/p535/ch08.html#en_US_2014_publink1000208966
As you may know inventory is not depreciated but will be part of the cost of goods sold.
Start up costs may or may not be part of this payment.
http://www.irs.gov/publications/p535/ch08.html#en_US_2014_publink1000208939
Hope this gives you a general guide of the various methods to account for the cost. You may be well served to engage a tax professional and provide all the documents and details to properly apply the general rules to the specific situation.
Please ask if you need more information or discussion.
Thank you.

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