Ask Your Clients These 5 Questions to Determine If 179D Is For Them

Posted by Jennifer Birkemeier on 9/30/15 8:58 AM

A Few Indicators Will Tell You If Their Deduction Will Be Worth the Cost of the Study

Energy_efficient_buildingWe spend a lot of time talking with CPA firms about section 179D and cost segregation studies. It’s a pretty great job to help accountants and their clients uncover substantial tax savings that they didn’t know were available or didn’t know how to claim. At the same time, we have to remind the folks that we talk with not to get too far ahead of themselves. It’s important to remember that the potential 179D deduction must be large enough to justify the cost of the study needed to claim it. Here are a few questions you can ask to determine if a client is in line for tax savings that warrant a study.

  • What type of improvements were made? Section 179D applies to energy efficient improvements made in 3 different categories:How big is the space? The deduction is calculated based on the square footage of the structure improved, so smaller spaces may not justify the cost of the study. Typically, 30,000 sq. ft. seems to be the threshold at which most Section 179D deductions exceed the cost of the calculation.

    • Lighting
    • HVAC
    • “Envelope,” which includes improvements to the shell of the building that make it more efficient, such as windows, roof, etc.  
  • How much did the work cost? The deduction is also limited to the amount spent on the improvements. It’s important to check the receipts before committing to the study in order to make sure that the potential deduction is large enough.

  • What are the energy efficiency ratings of the old materials removed and the new materials installed? The licensed engineer or contractor who reviews the improvements will make a determination based on the improvement in energy efficiency. The business needs to have enough information about the old and new materials to support that calculation.

The questions above apply to commercial property owners who have made or are considering making energy-efficient improvements to their properties. If you have a client or potential client that is an engineering or architectural firm, there’s a different question to ask that could uncover significant opportunities.

  • Do you serve government clients? If a government makes an energy efficient improvement to a building, it won’t have much use for a 179D deduction. However, the law provides some opportunities for an engineering or architectural firm that designs the energy efficient improvements to a government building to claim the deduction. If your firm serves these professionals, or if it would like to expand into this segment of the market, this is a great question to ask.  

As an accountant, you know better than most how to help a business evaluate the potential costs and benefits of any particular decision. When it comes to performing a cost segregation and claiming a section 179D deduction, these questions should help you make that evaluation quickly and accurately.

Tags: commercial real estate, Section 179D, Jennifer Birkemeier, tax saving opportunities

Have Your Commercial Property Clients Considered Every Tax Saving Opportunity?

Posted by Don Warrant on 8/4/15 9:17 AM

Which non-engineering based tax incentives present the greatest opportunity for commercial property owning clients? Why?

tax_incentivesSome artists will tell you that the hardest thing about creating a painting is knowing when it’s finished. This may be one of the few ways that tax practice resembles the creation of fine art. There are so many opportunities for savings, it’s hard to know when your commercial property clients have finished considering every one. Here’s a quick overview of some credits and incentives available to commercial property owners that don’t always get considered when planning to manage taxes.
  1. Property tax incentives
  2. Sales tax exemptions
  3. Employment incentives
  4. Location based incentives
  5. Historic tax credits
  6. Energy efficiency tax deduction
  7. Alternative energy improvements
Property Tax Incentives. State and local governments typically offer a property tax abatement for new construction or renovation of existing buildings. Commercial property owners should consider whether such abatements apply based on the type and location of the property.
In addition, a state may provide a real property tax credit based on the use of the commercial building in a qualifying activity. Commercial building owners should always consider how these incentives could impact their operating costs.
Sales Tax Exemptions. State and local governments may provide a sales tax exemption for new construction or rehabilitation of existing buildings. Commercial building owners generally must secure such exemptions before entering into a construction contract. Such exemptions can significantly reduce the overall cost of construction.
Employment Incentives. Federal, state and local governments typically provide incentives for hiring targeted individuals. For example, the federal Work Opportunity Tax Credit program provides a tax credit for hiring targeted individuals including honorably discharged veterans of any branch of the U.S. armed services. State and local governments may provide similar incentives for hiring targeted individuals.
Location Based Incentives. The Federal Empowerment Zones (“EZ”) program provides a tax credit for hiring individuals who live and work within designated areas. Commercial building owners should always check whether their building’s address is located within a designated area and if so, they may claim EZ credits retroactively for all prior years open under the federal statute of limitations.
In addition, to encourage cleanup and redevelopment of brownfield sites, states may provide incentives such as liability relief and tax credits. For example, New York State provides refundable tax credits for clean-up, new construction, real property taxes, and remediation insurance.
Historic Tax Credits. The IRS provides historic tax credits for the rehabilitation of historic properties. In many cases, these tax credits make the rehabilitation of a historic property feasible. In addition, State governments may provide a similar tax credit. For example, New York State will match the federal credit and it is refundable.
Energy Efficiency Tax Deduction. Commercial building owners who install energy efficient property as part of the commercial building’s interior lighting systems, heating, cooling, ventilation, and hot water systems, or building envelope may qualify for a federal tax deduction, even if the project was completed in a prior tax year (back to 2006). Certification must be obtained to verify that the property installed satisfies the energy efficiency requirements. Generally, any new lighting installation will qualify for the tax deduction. Therefore, the cost of any construction that involves lighting should be calculated taking into account the potential tax deduction that can accompany the installation.
Alternative Energy. Commercial building owners should consider incorporating alternative energy improvements during construction to reduce future operating costs. These types of improvements are typically subsidized by federal and state tax credits and grants. In addition, the federal recovery period for alternative energy property is 5 years.
Consider Tax Credits and Incentives Before Signing Contracts. The time to consider tax credits and incentives is before a construction contracts is signed. Commercial building owners will likely forfeit construction related incentives once they have committed to the project by signing a construction contract.
CSP360 Deep Dive Program Some Experience Required. If your firm has clients that might benefit from these incentives and an interest in pursuing them, you should evaluate the talents of your current team. In many cases, CPA firms can best add services like these to their portfolio of offerings by partnering with firms that are designed to support them with privately branded solutions.
If you think you might have some commercial real estate clients who have yet to explore the availability of all the credits and incentives that may apply to them, or if you want to reach out to potential clients and suggest a review, please contact us here or at (800) 591.0148.

Tags: commercial real estate, Property tax incentives, Sales tax exemptions, Historic tax credits, Employment incentives, Location based incentives, Energy efficiency tax deduction, Alternative energy improvements

When New Clients Wave Red Flags—2 Signs Your New Client Got 263(a) Wrong

Posted by Don Warrant on 7/22/15 9:07 AM

If you’re onboarding a new commercial real estate client this summer, be sure to check tangible assets on the tax return

tangible_property_regs-4Summer isn’t just about quality time at the pool or the golf course. It’s also about quality networking time focused on growing your practice. Lots of calendar-year taxpayers are coming off of their annual experience with their tax preparers, and some of them are bound to be testing the waters to see if a new accountant might be a better fit. If you’re fortunate enough to be adding clients that own tangible property, especially commercial real estate clients, there are 2 key signs that they may have missed a significant tax-saving opportunity under the new 263(a) regs.
1-Does the Return Include a Form 3115?

If your new or potential commercial real estate client has already filed a 2014 tax return, that return should include a Form 3115, Application for Change in Accounting Method. If it doesn’t, the good news is that most clients can still file that form up to the extended due date of the original return. And the even better news is that you will likely be able to help them get a significant refund as a result.
2-If the Return Includes a Form 3115, Is There a 481(a) Adjustment?

If you onboard a new client or talk to a potential client who did file a return with a change in accounting method, you need to review that adjustment. The new regs under section 263(a) require affected businesses to change their accounting methods (Form 3115) and to adjust the basis of many existing assets to reflect that change (Form 3115—Part IV, Section 481(a) Adjustment). If you review a return for a new client that includes the change in method but not the adjustment, it’s likely that there is a mistake involved that needs to be corrected before the extended deadline for the return.
263(a) opportunities Even if the Form 3115 has been filed and a 481(a) adjustment has been claimed, it’s important to review the previous accountant’s work in calculating the adjustment. The one-time catch up adjustment for businesses that change accounting methods under the new rules has generated more than its share of confusion and errors this year.
If you’re looking at new clients that have tangible assets, you might want to consider getting a second opinion on the 481(a) adjustment from CSP360. Our professionals focus on tax issues affecting commercial real estate clients. We have helped many accounting firms that wanted an extra set of eyes on this issue at this critical time. If you have any questions or concerns about how the new rules may have affected your commercial real estate clients or prospects, a consultation with CSP360 could help you to better serve your client.

Tags: 263(a) regulations, tangible property regulations

Time Is Running Out to Get 263(a) Elections Right

Posted by Don Warrant on 7/14/15 8:59 AM

The Window of Opportunity on These Tax-Saving Elections Closes This Fall

263aThe weather’s heating up. It feels like time for that midsummer lull between the spring tax season everybody knows about and the fall extension deadlines that wreak almost as much havoc on a CPA’s life without the relief of occasional tax jokes from late-night hosts. There’s a big difference this year, though. Any clients with depreciable property on their returns needed to make changes in accounting methods and consider making elections under new regs for their 2014 returns.
Taxpayers who already filed their returns can still make changes to those returns to take advantage of the tax saving opportunities or to include a missed election using the automatic extension procedures. Given the scope and complexity of the new rules, it makes sense to take a second look at the returns of your affected clients to make sure that the new rules were followed correctly. With the amount of potential tax savings at stake, you may want to consider having a second set of eyes that are focused on this issue reviewing those returns.
Most commercial real estate businesses are likely to see a significant impact from the regs. Given the constant need for repairs, replacements and maintenance on buildings, these clients need to make sure that they have correctly implemented the accounting method changes and claimed the related adjustments. Because the IRS will continue to release guidance this year, CPA firms should continue to consider this an important topic to discuss with clients.
If you’re confident that your firm got this complicated compliance initiative right for all of your clients, by all means hit the beach or the mountains or go wherever you need to go to relax this summer. If you’re wondering whether there’s a possibility you may have missed something and you want to consult with a professional who is focused on helping CPAs provide the best service possible to commercial real estate clients, a consultation with CSP360 might make your time off much more relaxing.
263(a) opportunities Just remember, the automatic extension procedures don’t close gradually over time and remain open for some people in certain circumstances. This window of opportunity slams shut on the extension date for the original return—either September 15 or October 15 for calendar year taxpayers. If the taxpayer didn’t file a Form 3115 with their 2014 tax return then the taxpayer has effectively made all of the method changes for tangible property without the benefit of a tax deduction. That is most likely not the best option for the taxpayer. Similarly, if the taxpayer filed a Form 3115 with their 2014 tax return reporting a $0 Section 481(a) adjustment, they have not taken advantage of the tax savings opportunities and may not have complied with these regulations. Now is the time to fix those returns if necessary.
These normally quiet months for tax practitioners can be a critical time for some clients. If you have any questions or concerns about how the new rules may have affected your commercial real estate clients or prospects, a consultation with CSP360 could help to put your mind at ease.

Tags: 263(a) regulations, tangible property regulations

How to Pitch a Cost Seg Project to a Commercial Real Estate Client or Prospect

Posted by Don Warrant on 5/25/15 9:19 AM

Establish credibility by demonstrating cost segregation tax law and engineering expertise—then show them the money!

Last week we talked about how to qualify a commercial property owner as a strong prospect for accelerating depreciation deductions through a cost segregation study. Now how do you position your firm as the right solution to deliver those tax benefits?
In our experience, CPA firms are often strong contenders for cost segregation projects, primarily because they already have strong relationships with their existing clients and typically are not in a competitive bid situation. Even when pitching to a non-client, most accounting firms have a leg up over boutique cost segregation providers because CPAs typically are known in their markets for both integrity and tax know-how. However, general tax knowledge and trustworthiness usually are not enough to convince savvy commercial real estate owners to sign on the dotted line.
To win a seat at the table and get a chance to quote on a cost segregation project for a client or prospect, you need to demonstrate three important things:
  1. Understanding of the relevant tax code and case law.
From the 1997 Hospital Corp. of America Tax Court ruling to the January 2015 Louisiana district court ruling on placed in service dates, commercial property owners need confidence that your firm has access to the most up-to-date knowledge of relevant case law. For CPAs that haven’t already dedicated the time and resources to research this ever-evolving area of the tax code, partnership with a reputable cost segregation specialist might be the best path to delivering this service line.
  1. Engineering experience and industry expertise.
Just like snowflakes, every building has different features. That’s why cost segregations that rely on industry averages or “rules of thumb” are likely to be inaccurate and subject to restatement upon IRS examination. Cost segregation studies based on either actual construction costs or estimates based on engineering expertise, on the other hand, are more likely to generate depreciation deductions that are not only accurate and defensible but also more comprehensive—so the client will not be leaving money on the table.
Again, the backing of an established cost segregation strategic partner is the best route to give your client or prospect confidence that you will deliver the full package of tax minimization and IRS audit defense.
  1. “Show me the money.”

When it comes down to it, commercial property owners are most interested in knowing how much they can expect to save on their taxes in the next few years. In general, we find that tax-paying owners of commercial buildings with a tax basis of $1 million or more see accelerated depreciation deductions that add up to at least 10 times the cost of the study. With just a few pieces of data, a reputable and established cost segregation firm can provide a detailed estimate of anticipated tax benefits. 

Preparing a Cost Segregation Quote

Once you have clearly demonstrated your firm’s credentials, you are ready to prepare a quote for the project. Different CPA firms take different approaches. Some provide an estimate of their time on top of the cost seg specialist’s fee, and others give the client a package quote that allows them to value bill for their role in delivering the cost segregation study. (Remember that the only pricing strategy that is completely off the table is a contingent fee.)
cost segregation guide for CPA firms For most CPAs, however, the true pot of gold at the end of the rainbow is the ability to keep competitors at bay and delight an important client with accelerated deductions that improve the owner’s cash flow.
Do you have a commercial real estate client or prospect who could benefit from a cost segregation study? Download our cost segregation data collection form, and we’ll give you a call to walk you through it and discuss how we can help you close on that opportunity and (most importantly) deliver valuable tax benefits to that building owner.

Tags: cost segregation, Don Warrant

Post Tax Season 263(a) Opportunities to Get New Clients from Competitors

Posted by Don Warrant on 5/22/15 9:03 AM

Don’t let competitors use a letter like this to steal your clients.

Most accountants spend the end of April and early May catching their breath and letting the dust settle from the spring filing season. Once you’ve cleaned up and started planning for the summer, remember that there’s a very rare opportunity this year related to the 263(a) tangible asset rules. Taxpayers who timely filed their 2014 federal tax returns receive an automatic extension of time to amend their tax returns to file Forms 3115 and make late elections.
Most commercial real estate businesses are likely to see a significant impact from the regs. Given the constant need for repairs, replacements and maintenance on buildings, these clients need to make sure that they have correctly implemented the accounting method changes and claimed the related adjustments. Because the IRS will continue to release guidance even after the filing season has ended, CPA firms should continue to consider this an important topic to discuss with clients. For example, the rules on building refresh’s are still evolving and IRS guidance is expected anytime.
You may very well be on top of things and maximizing any 263(a) opportunities for your clients. On the other hand, if you are behind the curve, you’ve opened up a tremendous window of opportunity for a more aggressive competitor to poach clients.
Given the complexity of these rules and the fact that significant pieces of guidance have yet to be released, the next few months are a great time for your firm to aggressively reach out to potential clients about their 263(a) opportunities. For example, if they already filed, explain how you can help them capitalize on a missed opportunity under the automatic extension procedures. If they are on extension, then their current tax preparer may not have pinpointed the tax savings opportunities, carpe diem (seize the day)!
Here’s what that letter from an aggressive accounting firm to your client might look like.


We’re pretty sure that you would be very displeased if one of your clients got a letter like this, but your clients are fair game for firms that can deliver more tax advantages from an opportunity with an ever closing window.

This opportunity to amend 2014 tax returns under the automatic extension period might be missed by other tax return preparers. But it’s also an opportunity that some of your competitors may seize if you don’t.

If you would like to evaluate your clients’ plan to comply with the new rules for tangible property, we can help. Contact us to schedule a consultation.

For more on this topic, be sure to download our whitepaper, “Using the New Tangible Property Regs to Help Clients and Gain New Business

Tags: 263(a) regulations, tangible property regulations, accounting method changes, Form 3115

4 Pieces of Data You Need to Qualify a Cost Segregation Opportunity

Posted by Don Warrant on 5/20/15 9:03 AM

Tax-Saving Formula: A + B + C + D = $$$

cost_seg_tax_savingWe've talked about when cost segregation might not be right for your commercial real estate client or prospect. So how do you know when cost segregation is the right answer?
At CSP360, we rely on a few key pieces of data to estimate the tax savings a commercial property owner can expect as a result of accelerated depreciation. Here are the 3 most important inputs into that equation:
  1. The physical attributes of the property. You’re probably already aware that certain types of buildings naturally have a high proportion of shorter-lived assets. For example, hotels, restaurants, golf clubs and other hospitality-oriented businesses tend to have lots of furniture, fixtures, and other finishing touches that qualify as Sec. 1245 property. Did you also know that location factors large in the cost-benefit equation? If the building is on a city block surrounded by city-owned sidewalks, then the opportunity to take accelerated depreciation for land and land improvements is severely limited.
  1. The federal tax depreciation schedule for the property owner. A cost segregation tax specialist will need to see how the property currently is being depreciated on schedules submitted to the IRS (as opposed to schedules used internally or for financial statement purposes). If the property is primarily being depreciated over 39 and 27½ years, that owner is more likely to be able to reap the benefits of a cost segregation study.
  1. The property owner’s tax-paying history. Clients that expect negative adjusted gross income or those that will only have passive rental income will not be able to benefit from accelerated depreciation deductions.
  1. The tax basis of the property. The cost-benefit calculation generally works out best for buildings with a tax basis of $1 million or more. However, owners of buildings with a high proportion of nonstructural elements (e.g., hotels, restaurants, apartment buildings) often can justify a study with an even lower tax basis.
cost segregation guide for CPA firms Of course, the right answer can’t be boiled down to a simple formula. Every situation is different and depends on many factors, such as how the property was acquired and how long the owner plans to hold it. A successful cost segregation—one that results in the greatest amount of accelerated depreciation that also will stand up to IRS scrutiny—requires extensive knowledge of cost segregation tax law as well as industry-specific engineering expertise. Success also relies on the CPA’s intimate knowledge of the building owner’s specific circumstances and tax situation.
If you think your commercial property owning client or prospect could benefit from a cost segregation study, we can help qualify that opportunity. Request our cost segregation data collection form and get started today.

Tags: cost segregation, Don Warrant, tax saving opportunities

Is 179D Tax Deduction Right For Your Commercial Real Estate Client or Prospect?

Posted by Jennifer Birkemeier on 5/12/15 9:28 AM

Here are 3 pieces of data you need to tell if a 179D study will generate at least 10-to-1 ROI.

179D_tax_deductions_for_commerical_real_estateGreen is the new black, and chances are good that your commercial real estate clients and prospects have replaced windows, HVAC units, or lighting in the past few years with more energy-efficient models.
The status of the 179D tax deduction for energy efficient commercial buildings currently is in limbo for 2015 and beyond. However, this perennial “tax extender” is a popular one that enjoys broad support, and so it will most likely be implemented retroactively for the 2015 tax year.
Digging for just a few pieces of information now will allow you to see if your commercial real estate clients would benefit from this valuable tax deduction (up to $1.80 per square foot) that can generate ROI for the property owner of up to 10 times (or more) the cost of the study.
The pieces of data you will need to perform a 179D analysis include:
  1. Square footage of the building and the energy efficient improvement or addition.
Ask the client or prospect for architectural drawings of the buildings to get an accurate measurement of the overall square footage and the size of the addition or improvement. Generally, because 179D requires an independent certification by licensed engineer licensed and thorough modeling for each individual building, the building should be at least 30,000 square feet for the benefits to outweigh the costs of the study.
  1. Technical specifications on efficiency improvement.
Next, you will need the technical specifications about the energy efficiency of the new unit. The engineer will compare each building’s performance to government standards to determine if it reaches the required threshold of energy savings.
  1. Invoices for energy-efficient upgrades and additions.

Currently, the maximum 179D tax deduction is $1.80 per square foot for buildings that achieve the threshold of 50% energy and power cost savings for the whole building, or $0.60 per square foot for partially qualifying property. However, the deduction is capped at the taxpayer’s actual costs for the improvements. So to determine whether the deduction will or will not be worthwhile, you will need the client’s invoices for the improvement project or new building. 

Do the Benefits of 179D Outweigh the Costs?

Once you’ve gathered all these pieces of data, you can use the U.S. Department of Energy’s 179D calculator to estimate the potential tax savings for your client.
Buildings of at least 30,000 square feet that meet the government’s technical specifications typically generate ROI of at least 10 times the cost of the 179D study. However, since the lookback on this deduction goes all the way back to January 2006, commercial property owners that have performed efficiency upgrades over multiple years might see even better returns, in some cases closer to 20-to-1.
If you would like to evaluate your clients’ previous or upcoming building or renovation projects to determine whether they qualify for the 179D tax deduction, we can help. Contact us to schedule a consultation.

Tags: commercial real estate, Section 179D, Jennifer Birkemeier, tax saving opportunities

3 More Things That Might Surprise CPAs About Cost Segregation

Posted by Jennifer Birkemeier on 5/6/15 9:13 AM

Owners of commercial property can realize 20-to-1 ROI on cost segregation study performed by a firm with engineering and tax expertise.

Cost_segregation_heroYou know that a cost segregation study can uncover opportunities to slash your commercial real estate clients’ tax bill. But there might still be a few questions lingering in your mind about whether the benefits of cost segregation outweigh the time and expense of the study. For the right types of commercial property owners—and by working with the right cost segregation strategic partner—a cost segregation study can deliver higher ROI and require less time and effort from you and your client than you might think.

Surprisingly Good ROI for Clients and Prospects

We tend to be conservative when we estimate a client’s potential tax savings from cost segregation. We typically tell our CPA firm partners that their clients can expect a return on investment of at least 10 times what they pay for the study.
But for owners of properties with a high proportion of nonstructural elements—such as hotels, restaurants and manufacturing facilities—segregating those shorter-lived assets often generates tax deductions that add up to 20 times what they pay for the study.
Of course, the opportunity to realize that high ROI will depend on whether the cost segregation provider brings to the table both tax and construction engineering expertise.
Consider this: As a CPA, you have been trained to pick depreciable assets out of a balance sheet. But do you know how to read blueprints to identify all of the elements that qualify for shorter depreciable lives? Probably not.
Construction engineers know what lies behind the walls of a building—the miles of wiring, ductwork and plumbing that could qualify for 5-, 7- or 15-year depreciation. When you partner with a cost segregation provider that has the combined knowledge of cost segregation tax specialists and engineering professionals, your client or prospect is more likely to benefit from higher ROI, and you will cement that relationship for your firm.

Minimal Disruption to You and Your Clients

Maybe you’re worried that the cost segregation study will suck up time and resources that you and your client don’t have to give. Actually, experienced cost segregation engineers know how to minimize the disruption of their site visits. Engineers who are experienced with the type of property in question often require only a quick introduction to the site by a property maintenance manager and conduct the remainder of the site survey independently.
An experienced cost segregation firm also will make the process easy for you and your tax team. Once the cost seg specialists have the final cost for the finished building, either from the owner’s general ledger or a final invoice from the contractor, your involvement is over until you receive the final depreciation numbers to factor in to the client’s tax return.

Higher Profit Potential for Your Firm

cost segregation guide for CPA firms Here’s the great news for you: Because cost segregation often generates significant ROI for commercial property owners and requires little investment of time on your part, your firm’s profit potential skyrockets. Not only do you have opportunities to value bill for time you spend consulting with your client on these lucrative tax opportunities, but you have also positioned your firm as the go-to resource for progressive, tax-slashing solutions.
Ready to become a tax-slashing hero for your clients and prospects? Learn more about the benefits of performing cost segregation in our whitepaper.

Tags: cost segregation, Jennifer Birkemeier

3 Things That Might Surprise You About Cost Segregation’s Tax-Slashing Potential

Posted by Jennifer Birkemeier on 4/28/15 9:19 AM

What you don’t know about tenant buildouts, asset abandonment, and bonus depreciation could cost your clients tax benefits.

cost_segregationWe performed our first cost segregation study for a property owner 20 years ago—and my, how the discipline has evolved since those early days.
We’ve learned quite a few things along the way. Here are a few that might surprise you and delight your commercial real estate clients and prospects.
  1. Tenant’s build outs reinforce tax savings.
Leasehold improvements represent a wealth of tax deductions for property owners. Because these build outs typically do not involve the building shell, a high percentage of those costs typically are for tangible personal property. The only way to claim those depreciation benefits? Allocate costs to their proper asset groups through a quality cost segregation study.
  1. When abandonment is a good thing.
Most tenant build outs involve replacing an asset. If the old asset is still being depreciated, then the property owner might be able to write off the remaining tax basis of the asset that is being disposed of. There are two prerequisites to take advantage of this tax benefit: First, the new asset must be capitalized (i.e., you can’t deduct both the new and the old asset). Second, the cost of the abandoned asset must be specifically identified. So once again, cost segregation saves the day!
  1. A bonus surprise.

You probably already know that property owners can take bonus depreciation on personal property with a depreciable life of less than 20 years. (Currently, bonus depreciation is available only for assets placed in service in 2014 and earlier.) You also know that cost segregation identifies assets that qualify for shorter depreciable lives.
By conducting a cost segregation, your client benefits from accelerated depreciation for newly segregated personal property AND ALSO a bonus depreciation deduction on those assets.
And there’s even better news. Property owners can go all the way back to 2001, when this particular benefit came into law, to claim bonus depreciation on tangible personal property placed in service in previous years.

Tax and Engineering Expertise Required

Capturing depreciation benefits through cost segregation is a complex area of taxation, and there are many more nuances than we can explore in this blog post. For example, bonus depreciation is one of those tax “extenders” that has come in and out of the law throughout the last 15 years at different percentages, so CPAs must be careful to apply the correct percentages to the assets in question.
cost segregation guide for CPA firms Recognizing and taking advantage of depreciation benefits requires a special combination of both tax and engineering expertise. In fact, the IRS Cost Segregation Audit Technique Guide states:
The preparation of cost segregation studies requires knowledge of both the construction process and the tax law involving property classifications for depreciation purposes.
As you’re working on your clients’ extended 2014 tax returns, keep an eye out for the above opportunities to boost your their depreciation deductions through a cost segregation study. Feel free to contact us if you have questions about how to spot and take advantage of those opportunities.

Tags: cost segregation, Jennifer Birkemeier, Accelerating depreciation deductions, bonus depreciation

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