Does the IRS allow special depreciation allowance on a portion of loan fees paid by a single-member LLC for commercial property acquired in 2024?
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Based on the sources provided, the IRS does not allow the special depreciation allowance (bonus depreciation) under section 168(k) for a portion of loan fees paid by a single-member LLC for commercial property acquired in 2024.
Legal Analysis
1. Nature of Loan Fees
Loan fees (such as loan origination fees, points, or financing costs) paid in connection with acquiring commercial property are generally considered capital expenditures. For tax purposes, these costs are not treated as part of the depreciable basis of the property itself. Instead, they are typically amortized over the life of the loan under section 163 or section 461, not depreciated under section 168.
2. Eligibility for Special Depreciation Allowance (Bonus Depreciation)
The special depreciation allowance under IRC §168(k) applies to "qualified property," which is defined as tangible property with a recovery period of 20 years or less, certain computer software, water utility property, and certain qualified improvement property. The property must be depreciable under MACRS and must be acquired by purchase for use in the taxpayer’s trade or business.
Loan fees do not meet the definition of "qualified property" under section 168(k) because:- They are not tangible property.- They are not depreciable under MACRS.- They are not computer software, water utility property, or qualified improvement property.
3. Treatment of Loan Fees
Loan fees are generally amortized over the term of the loan, as required by section 461(g) and related regulations. They are not eligible for depreciation (including bonus depreciation) because they do not represent the cost of acquiring or improving a depreciable asset, but rather the cost of obtaining financing.
4. Single-Member LLC Status
A single-member LLC is generally treated as a disregarded entity for federal tax purposes, meaning its activities are reported on the owner’s return. This does not change the character of loan fees or make them eligible for bonus depreciation.
5. No Exception for Partial Loan Fees
There is no provision in the Code or regulations that allows a portion of loan fees to be treated as qualified property for bonus depreciation purposes. The entire amount must be amortized over the loan period.
Conclusion
Loan fees paid by a single-member LLC for commercial property acquired in 2024 are not eligible for the special depreciation allowance (bonus depreciation) under section 168(k). These fees must be amortized over the life of the loan and cannot be depreciated, either in whole or in part, under MACRS or claimed as bonus depreciation.
If you have a different type of fee or cost in mind, or if the loan fees are being capitalized into a different type of asset, please provide more details for further analysis.
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