As Senate considers tax extenders bill, learn how to use dispositions and removal costs to enhance tax savings of 179D.
Ever heard the saying that you must give to receive? During this season of giving, CPA firms can help owners of commercial property benefit from this phenomenon when they dispose of tangible property and, as a result, realize lowered tax bills and increased cash flow.
In fact, this holiday season could be a very happy one indeed if the Senate approves the tax extenders bill (Tax Increase Prevention Act) that passed the House by a wide margin on Dec. 3.
But even if that particular gift is delayed, commercial property owners still have a rare opportunity as a result of the interplay between the 179D federal tax deduction for energy efficient improvements to buildings and the new tangible property regulations. Read more about this triple play in our latest blog post.
Even in the unlikely scenario that Congress fails to extend 179D, your commercial real estate clients still can capture deductions (up to $1.80 per square foot) for energy efficiency improvements placed in service between January 2006 and December 2013.
But why stop there? For every building improvement, the property owner should dispose of old property. And thanks to the final tangible property regulations, those dispositions can result in significant tax savings.
How The Triple Play Works
Consider a hotel that upgraded its lighting to a more energy-efficient system in 2013. How do you turn that expensive renovation into a tax-saving opportunity?
First, you conduct an energy efficiency study and claim a deduction for the new lighting system—for lighting; the deduction is up to $.60 per square foot.
Next, you claim a loss on the disposition of the old lighting and recognize a tax deduction for the remaining basis in that asset. But this is a limited-time opportunity. The Revenue Procedure allows for making a “late partial disposition election” as a change in method of accounting for the 2012, 2013 and 2014 tax years only. So that means that once the property owner’s 2014 tax return is filed, the opportunity to look back to prior year dispositions is gone forever. Ignoring this limited-time opportunity could cost your client tens or even hundreds of thousands of dollars in potential tax deductions.
The final leg of this triple play is the potential opportunity to take a deduction for removal costs. When your client installed new lighting, that property owner most likely also paid to have the old lighting removed and hauled away. Using cost segregation methodology, you can identify removal costs that qualify for current tax deductions.
Recruit the Right Team
Executing a triple play takes skill and precision. Is your firm equipped with the engineering, tax and accounting expertise required to take advantage of these three tax-saving opportunities? Through our CPA Partnership Program, CSP360’s team of tax specialists, engineering professionals and accounting method specialists partners with CPA firms throughout the country. Contact us to learn how we can position you as a tax-slashing hero.