SECTION 1. PURPOSE

This revenue procedure explains how a commercial revitalization agency may retroactively allocate commercial revitalization expenditure amounts for certain buildings located in the expanded area of a renewal community pursuant to § 1400E(g) of the Internal Revenue Code. This revenue procedure also explains how a taxpayer may make a commercial

2006–9 I.R.B. 539 February 27, 2006

by the taxpayer (a “placed-in-service year allocation”; see section 4 of Rev. Proc. 2003–38); or (2) an allocation of commercial revitalization expenditure amounts for a qualified revitalization building that is not yet placed in service, but will be placed in service by a taxpayer not later than the close of the second calendar year following the calendar year in which the allocation is made, provided the taxpayer’s basis in the project of which the building is a part (as of the later of the date that is 6 months after the date that the allocation is made or the close of the calendar year in which the allocation is made) is more than 10 percent of the taxpayer’s reasonably expected basis in the project as of the close of the second calendar year following the calendar year in which the allocation is made (a “carryover allocation”; see section 6 of Rev. Proc. 2003–38).

.07 Section 179 provides that, in lieu of depreciation, a taxpayer may elect to deduct the cost of § 179 property (as defined in §179(d)(1)), up to a certain amount, placed in service by the taxpayer for the taxable year. The total cost of § 179 property that a taxpayer may elect to deduct under § 179 (the “dollar limit”) is $24,000 for 2002, $100,000 for 2003, $102,000 for 2004, and $105,000 for 2005. However, the dollar limit is reduced (but not below zero) by the amount by which the cost of § 179 property placed in service by the taxpayer during the taxable year exceeded $200,000 for 2002, $400,000 for 2003, $410,000 for 2004, and $420,000 for 2005 (the “reduced dollar limit”). The election under § 179 is made within the time and in the manner provided in § 1.179–5 of the Income Tax Regulations.

.08 If § 179 property is also qualified renewal property, § 1400J(a) and § 1397A(a) modify the dollar limit and the reduced dollar limit for purposes of § 179. The dollar limit under § 179 is increased by the lesser of $35,000, or the cost of § 179 property that is qualified renewal property placed in service during the taxable year. Consequently, if a taxpayer placed in service in 2002, 2003, 2004, and 2005, § 179 property that is also qualified renewal property at a cost of $35,000, the dollar limit under § 179 is $59,000 for 2002, $135,000 for 2003, $137,000 for 2004, and $140,000 for 2005. Further, in determining the reduced dollar limit, a tax

revitalization deduction election under § 1400I(a) for these buildings and may deduct the increased § 179 expensing amount under § 1400J for certain § 179 property that is placed in service in the expanded area of a renewal community pursuant to § 1400E(g).