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When is a building placed in service for purposes of depreciation?

Depreciation [1]In a recent tax case (Stine, LLC v. USA), Stine, a retail operation in Louisiana that among other things sells home building material and supplies, sought to have the government ordered to refund taxes it paid under protest. The government sought a ruling from the court that Stine was not entitled to take an accelerated depreciation allowance granted by the Gulf Opportunity Zone Act of 2005 because the relevant buildings were not open for business prior to December 31, 2008. The parties’ only dispute in the motions for summary judgment related to when the property was “placed in service”.

Stine maintained that when the depreciable assets (the buildings) were substantially complete, the buildings were then ready and available for their intended use—to store and house equipment, racks, shelving and merchandise. The government maintained that because the two buildings were not open for business, the taxpayer had failed to meet the December 31, 2008 “placed in service” deadline.

On January 21, 2015, the court ruled that “whether a building is open for business is of no moment; rather the building is placed in service when it is substantially complete, meaning in a condition of readiness and availability to perform the function for which it was built—in this instance to house and secure racks, shelving and merchandise”.

As a result, Stine’s motion was granted and the government’s motion was denied.

If you have questions regarding depreciable assets, contact a ShindelRock tax professional [2] today.