Consolidated C Corp and Hotel Depreciation

[jeff501]

Hi Everyone

I've never done a consolidated corporate return before and it also involves a Hotel/Bed & Breakfast. Both are C Corps, the main corp. is for the Bed and Breakfast, the other is the construction company that built the units. I think I've got the consolidated part figured out, but having an issue with depreciation on the bed and breakfast part.

My client is convinced he can use Sec. 179 to accelerate depreciation on the buildings, my contention is he must take them over 27.5 years, and can possibly accelerate depreciation on furnishings, etc. After doing a bit of research, I found this from CCH:

*************************
Property used for lodging. Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. However, this does not apply to the following types of property.

• Nonlodging commercial facilities that are available to those not using the lodging facilities on the same basis as they are available to those using the lodging facilities.
• Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients.
************************
Apparently he's either heard or seen information similar to above. He's thinking the wording in the second bullet point means structure, I take it as meaning other property (furnishings, decorations, etc).

Right now, the tax return is showing net income with standard depreciation included, of over $150,000, and he wants to accelerate depreciation on the buildings to take it to zero.
Does anyone have any experience with a situation such as this? Any help would be greatly appreciated.

[Gary2]

I agree with your conclusion.

This is one of those multi-layer chains of exceptions. At the top level, it must be section 1245 property, which includes personal property but excludes most real property.

At the second level, even if something is personal property, it may be excluded under section 50(b)(2) if it's used for lodging.

At the third level, there's an exception to the exception. Even if something is used for lodging, it's not excluded under 50(b)(2) if it's used for a hotel (under 50(b)(2)A and B). This is only an exception to the second rule, it's not an exception to the first rule.

Or to put it in real life terms: The exception that your client quoted says that if you're running an apartment building, and replace a refrigerator in a unit, then it cannot be accelerated, but if it's a hotel, it can be accelerated. But in neither case can the building be accelerated.

[jeff501]

Hi Gary

Thanks for your reply, I appreciate the input. My client is coming in tomorrow afternoon and I'm going to break the news to him, he won't be happy I can just see it coming. I think I'm going to tell him he needs another opinion and send him packing.

There's a few other things with him and his past history I don't feel comfortable with either, may be good to just let this one walk.

Take care,

Jeff