When is a Building Considered “Placed in Service”? by John G. Ebenger, CPA

Posted on November 29, 2017 by John Ebenger

In order for businesses to take advantage of bonus depreciation on qualified improvement property (QIP), they must first understand how to determine the date that a building is considered to be “placed in service.”

In 2015, the PATH Act extended 50 percent bonus depreciation to non-leased QIP that is acquired and “placed in service” after December 31, 2015, and before December 31, 2017. The bonus rate will begin to phase out in 2018 when a 40 percent rate will apply to buildings placed in service during that year, and 30 percent in 2019 (or 2020 for aircraft and longer-production year property).

Many businesses seeking to apply this incentive during its short window of availability will face intense IRS scrutiny when they claim a building’s “placed in service” date is on the day it receives a certificate of occupancy, even if the building is not yet “ready and available for a specifically assigned function,” as required by the Treasury Department.

The IRS considers a building to be ready and available for use when the following benchmarks are achieved:

•           It receives approval of all required licenses and permits;

•           Control of the facility passes to the taxpayer;

•           It completes critical tests; and

•           It commences daily or regular operations.


However, in 2015, a U.S. District Court ruled in favor of a taxpayer who challenged the IRS’s definition of “placed in service” to include “open for business.”

In the matter of Stine, LLC v. United States, the court ruled that a taxpayer could begin deducting depreciation on a retail store when the property received a certificate of occupancy and was “in a condition of readiness and availability” even though it was not yet officially open to the public. While the court’s opinion opened the door for taxpayers to accelerate a placed in service date, the IRS in 2017 announced that it will not comply the court’s ruling and will instead continue to litigate the issue.

The IRS argues that property may be consider placed in service only after it is “ready and available for regular operation and income producing use.” Therefore, it is critical that property owners consult with tax advisors experienced in real estate matters in order to properly assess whether or not their buildings and qualified improvement property satisfy the IRS’s narrow definition of placed in service.

About the Author: John G. Ebenger, CPA, is a director of Real Estate Tax Services with Berkowitz Pollack Brant, where he works closely with developers, landholders, investment funds and other real estate professionals, as well as high-net-worth entrepreneurs with complex holdings. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at