New York Liberty Zone Depreciation
Continuing with the segment on Bonus Depreciation, this post will address depreciation rules for property in the New York Liberty Zone. A little over eight years ago, the atrocious events of September 11 left our country devastated physically, emotionally, and economically. With regards to the economic turmoil that ensued, particularly in the area of the World Trade Center, special provisions were made for property put into service in what is known as the New York Liberty Zone. Below is what you need to know including the geographic boundaries of the Liberty Zone.
As stated on the IRS Supplement to Publication 946, the area defined as the Liberty Zone is property “located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York.” For a detailed map, click here
Eligibility and Essential Info on Bonus Depreciation for Property in the Liberty Zone:
1. Qualified property must be:
- Depreciated under MACRS with a recovery period of 20 years or less.
- Off-the-shelf computer software (SL w/ FM at 3 years) Sect 167(f)(1)(B)
- Water Utility property
- Section 1250 property that rehabilitates damaged property or replaces property destroyed or condemned as a result of 9/11
2. Additional Requirements:
- 80% or more of the use of the property must be in the New York Liberty Zone.
- Property must be used in the active conduct of a trade or business by the taxpayer in the Liberty Zone.
- Original use of the property must commence on or after 9/11/01 in the Liberty Zone
- Property must be acquired by purchase as defined in Code Section 179(d)(2) by taxpayer on or 9/11/01
- Property must be placed in service by taxpayer on or before 12/31/06 or 12/31/09 for section 1250 property
3. Does not qualify for Bonus Depreciation under Sect 168(k), but does qualify for a 30% Bonus Depreciation under Sect 1400L(b)(1)(A). Property that qualified under 168(k) is specifically excluded.
4. ect 1400L(b)(1)(A) is more liberal and will cover property not eligible under Sect 168(k). Property placed in service after 12/31/04 and before 1/1/07 may also qualify for New York Liberty Zone.
5. Liberty Zone Bonus Depreciation is available for residential and nonresidential real property that replaces certain destroyed or condemned real property and for used property as long as the taxpayer was the first person to use the property in the New York Liberty Zone.
6. Sect 168(k) eligible property is also eligible under New York Liberty Zone rules.
7. Sect 179 Deduction is increased by $35,000.
8. Mandatory MACRS ADS property disqualified
9. Leasehold Improvement property is depreciated over 5 years with straight line and the half year convention
10 No AMT adjustment is required. I.e., same method, convention & Rec Pd as regular tax.
We understand that the concepts around Bonus Depreciation for property in the New York Liberty Zone may be rather confusing. Therefore, if you have any questions, or would like any further information, please state so in the comments section, or under the questions page. Also, you may find it interesting to read Governer Pataki’s letter to bussiness owners concerning this issue here.