Segregation-Services
Radius-blog-header

Don’t Overlook These 3 Client Transactions That Qualify for a Cost Segregation Study ... and Tax Savings!

Posted by Jennifer Birkemeier on 3/16/15 9:03 AM

If your client owns a group of commercial buildings that has a combined cost basis of $1 million or more, you may have some good news in store for them.

CostsegregationSo you’re sold on why tax time is the perfect time to talk about cost segregation opportunities with your client. Now you just have to spot those opportunities—and, of course, bring in the right cost segregation strategic partner to deliver those tax savings.
 
As you’re preparing your clients’ tax returns, look out for these three types of transactions that generally present an opportunity to accelerate depreciation deductions to the tune of at least 10 times the cost of the cost segregation study:
  • Purchase or construction of a building with a cost basis of $1 million or more. The cost-benefit calculation generally is most beneficial at the $1 million price point. However, in certain types of buildings with a high proportion of nonstructural components (such as hotels, restaurants, apartment buildings, retail establishments, and manufacturing facilities), a lower cost basis (such as $750,000) might also justify the cost of the study.
  • Multiple buildings of the same type that, all together, add up to a cost basis of $1 million or more. When one entity or individual conducts cost segregation studies on multiple buildings of the same type (e.g., 2-3 quick-service restaurants), as long as those buildings are within the same geographic market, the client will see efficiencies of scale in conducting cost segregation on that group of properties.
  • Tenant buildout with a cost basis of $500,000 or more. While new buildings tend to get all the attention, leasehold improvements are the unsung heroes of the cost segregation world. Because they are likely to involve fewer improvements to the building envelope or structural components, these construction projects likely are comprised of a higher percentage of Sec. 1245 property that qualifies for 5- and 7-year depreciation.
CSP360 Deep Dive Program If you missed these opportunities in prior years—don’t worry! Cost segregation can be conducted on properties that were placed in service as early as 1987. In fact, we recommend that CPAs automatically extend for all commercial property owners—not only to give them time to bring those owners into compliance with the Tangible Property Regulations, but also to perform cost segregation studies and other engineered services to minimize the tax bill.
 
Need help uncovering transactions that qualify for cost segregation? Contact us to schedule a Deep Dive into your commercial real estate client base to identify those tax-minimization opportunities.

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

4 Reasons to Talk About Cost Segregation With Your Commercial Real Estate Clients NOW!

Posted by Jennifer Birkemeier on 3/11/15 9:05 AM

Tax season is the perfect time to talk to clients about lowering their tax bill by accelerating depreciation deductions.

taxslashingheroYou’re deep in the throes of preparing your commercial property owners’ tax returns, and your partners are clamoring for those clients’ Schedule K-1s so they can close the books on 2014. The last thing you’re thinking about right now is how to create more work for yourself.
 
That might be shortsighted. Now is the perfect time to identify and discuss with your clients how they can reduce their 2014 tax bill through accelerated depreciation deductions—especially since the actual work to segregate out the costs can be deferred until the extension deadline.
 
Why is now the ideal time to talk about cost segregation?
 
1. Position yourself as a tax-slashing hero.
 
With the Bush era tax cuts far behind us, your clients are likely facing a significant tax bill for 2014. As you are meeting with your clients to gather information or deliver their tax returns, you can offset the bad news of a looming tax bill with the good news that you uncovered ways to lower that bill. Consider this: The average cost segregation study delivers accelerated depreciation deductions that add up to at least 10 times the cost of that study. So take the time now to sniff out cost segregation opportunities.
 
2. Leverage your Tangible Property Regulations compliance work.
 
Another great reason to bring up cost segregation opportunities now: You’re already doing part of the work. The Tangible Property Regulations require you to analyze your clients’ costs for purposes of testing them as repairs vs. improvements. As long as you’re digging into that fixed asset schedule, why not look for opportunities to accelerate depreciation deductions on Sec. 1245 property?
 
Here’s a shortcut: If you find a high proportion of 39-, 27.5- and 15-year property on the client’s depreciation schedule, it might be time to consider a cost segregation study on that property.
 
3. Take advantage of bonus depreciation for 2014.
 
Congress’ last-minute bill retroactively extended, for 2014 only, the 50% bonus depreciation. Since that incentive applies to 5-, 7-year, or 15-year property, conducting a cost segregation to identify those shorter-lived assets could mean even greater opportunities for depreciation deductions, which may or may not be available in 2015 and beyond.
 
4. Get in front of commercial property owners’ purchase agreements.
 
CSP360 Deep Dive Program We’ve all had clients who closed on the acquisition of a commercial property without consulting us and were faced with unfavorable tax consequences. Here’s one of those consequences you’ll want to steer your clients away from: Thanks to Peco Foods, Inc. v. Commissioner, if the purchase agreement includes an allocation of purchase price, then the purchaser might be precluded from conducting a cost segregation. If you have an opportunity to get out in front of your clients’ acquisitions of property, we recommend bringing in a cost segregation strategic partner to advise the client on how to leave the door open for a cost segregation study.
 
If you have questions about any of these opportunities, we’d be happy to help. Contact us to schedule a consultation.

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

‘Placed in Service’ Ruling - New Depreciation Opportunities for CPA Firms to Bring to Commercial Property Owners

Posted by Jennifer Birkemeier on 3/2/15 9:39 AM

Can you start depreciating a client’s commercial building before their business opens? U.S. District court says yes.

Accelerating_depreciation_deductionsEvery CPA knows that a building is considered placed in service—and thus depreciation begins—when it is open for business. Right?
 
A recent U.S. district court ruling turned that conventional wisdom on its head, and in turn, gives CPA firms the opportunity to bring good news to their commercial property-owning clients and prospects. In the case of Stine, LLC v. United States, a Louisiana district court found in favor of a taxpayer who argued that his two new retail stores were placed in service as of Dec. 31, 2008, because they both had received certificates of occupancy—despite the fact that neither was open for business.
 
At stake was the property owner’s ability to take advantage of an accelerated depreciation allowance granted by the Gulf Opportunity Zone Act of 2005. The IRS had disallowed Stine’s depreciation deduction and assessed the building supplies retailer with more than $2 million in taxes for the tax years 2003 through 2008. Stine sought a refund of these taxes.
 
In supporting Stine’s motion, the Court stated the following (emphasis added):
 
“…understanding that Congress could have easily expressed that a building be placed in service when open for business leads this court to believe that there is no requirement that a building be open for business in order for it to be placed in service for purposes of a depreciation allowance.”

Did your client buy a commercial building in December? Accelerate tax benefits into 2014.

The Stine finding is a welcome opportunity for commercial building owners and their CPAs who might otherwise have deferred depreciation benefits for 12 months or more because the business had not yet started and therefore, depreciation was not claimed.
 
As you complete your commercial real estate clients’ 2014 tax returns, keep an eye out for buildings that were purchased, built, or renovated near the end of the year, and consider the benefits of conducting a cost segregation study on that building for the 2014 tax year. If the cost-benefit calculation works out in the client’s favor, then extend or amend that property owner’s return so that you can take advantage of that opportunity to slash the client’s 2014 tax liability.
 
Need help identifying and taking advantage of tax-minimizing opportunities? Let's talk.

Tags: commercial real estate, Jennifer Birkemeier, placed in service, Accelerating depreciation deductions

CPAs Should Urge Commercial Property Owners to File Forms 3115… Despite IRS “Relief”

Posted by Don Warrant on 2/19/15 11:41 AM

Benefits of filing Form 3115 include IRS audit protection and valuable tax savings from prior-year repairs and dispositions.

Revenue_Procedure_2015-20To file Form 3115 or not. That is the question of the week.
 
Our answer: Owners of commercial property should continue to file a Form 3115 with their 2014 tax returns with limited exceptions (see sidebar), even though it may require filing extensions to allow adequate time to complete and file a Form 3115.

Sure… on its face, Rev. Proc. 2015-20 appears to be a reason to celebrate. Small taxpayers can now choose to make changes in accounting methods for tangible property without filing a Form 3115, as long as they use a “cut-off” method (i.e., for tax year 2014 and going forward).
 
Whew! Tax preparers can breathe a huge sigh of relief as a looming mountain of paperwork disappears in a puff of smoke. Right? Not really.
 
Filing a Form 3115 actually provides a number of protections that your client is waiving by taking advantage of this so-called “relief.”
 

  1. IRS examination protection. When taxpayers file Forms 3115, they receive IRS examination protection for their accounting method treatment for all prior tax years. By taking advantage of the exception for small taxpayers, your client waives that protection. For clients who may have aggressively expensed items in prior years under their old methods, that protection is likely worth the cost of preparing the Form 3115 (at most a couple of hours of your time). You still need to perform the work and documentation as to the methods and elections that apply to the 2014 tax year.
  1. Current deductions of previously capitalized items. Your client could be missing out on some taxpayer-friendly provisions within the Tangible Property Regulations if they choose to use the “cut-off” method. Many owners of commercial real estate actually have been fairly conservative in the past with regard to capitalization of costs in prior years. They could have tens or even hundreds of thousands of dollars in remaining tax basis that, under the new unit of property rules, are now eligible for current deductions. Without a method change filing, those deductions are off limits.
  1. Late partial disposition. As we’ve said in prior posts on "late" partial dispositions, taxpayers have a one-time opportunity to recognize partial dispositions of property that occurred in prior years on 2014 tax returns—and only if they file a Form 3115. Your client is waiving this opportunity if they file their return without a Form 3115.
  1. Recognize an unfavorable section 481(a) adjustment over a four-year period. If you have a commercial real estate client who aggressively expensed items in prior years that now must be capitalized and depreciated, then that client will be better off by coming into compliance now and spreading the hit over a four-year period. If the IRS finds those issues upon examination, they will require an immediate increase in income.

Resistant Clients? Have Them Sign a Waiver

What if your client has heard about this so-called good news from the IRS and demands to skip the Form 3115? We recommend that you ask your client to sign a written acknowledgement of the following:

  • They waive IRS exam protection for the item for all prior tax years.
  • They forego any tax benefits associated with a method change for repairs or for dispositions—including the expiring “late” partial disposition election.
  • Filing the return without a Form 3115 is irrevocable once the return is filed.
 
IRS issued Revenue Procedure 2015-20 revising Revenue Procedure 2015-14 Of course, we believe that your commercial real estate clients will see the light when you present all the benefits that can come from digging into their fixed asset and depreciation schedules to uncover tax savings while bringing them into compliance with the Tangible Property Regulations. If you have questions about whether filing Form 3115 is right for your client, contact us to learn how our accounting method change specialists can help.

Tags: commercial real estate, tangible property regulations, Don Warrant, Form 3115, fixed asset, Revenue Procedure 2015-20

And Here’s the Changeup: IRS Eases Transition to New Accounting Method Rev Proc

Posted by Don Warrant on 2/11/15 9:05 AM

Update: Revised revenue procedure means CPAs can continue to use existing method change templates citing Revenue Procedure 2011-14 for 2014 tax returns.

accounting_method_changes-1On Monday, the IRS followed up its tax-season curveball with a changeup. The Service issued a revised version of the revenue procedure issued on Jan. 16 that gives taxpayers and their tax preparers some welcome news with regard to preparing Forms 3115.

The Latest Ruling on Forms 3115

The revision recognizes that some taxpayers may already have prepared a Form 3115, Application for Change in Accounting Method, for their 2014 tax year with the expectation of using the procedures outlined in Rev. Proc. 2011-14. In addition, the existing Form 3115 and its instructions conform to Rev. Proc. 2011-14. A revised Form 3115 and instructions conforming to the procedures outlined in Rev. Proc. 2015-14 is expected sometime later this year.
 
The final word (for now) on these automatic method changes is that if your clients’ tax year-end falls between May 31, 2014 and January 31, 2015, you can (and should) continue to use the procedures outlined in Rev. Proc. 2011-14 rather than new procedures outlined in Rev. Proc. 2015-13.
 
Overview-of-Automatic-Method-Changes-1So rather than taking valuable time to update your firm’s templates for Form 3115 preparation, you can continue to use your existing templates for clients that fall into the tax years identified above. Other than this latest development, our guidance about these new revenue procedures remains largely unchanged—i.e., stay calm and carry on with tangible property compliance efforts.
 
If you are looking for guidance on these new accounting method change procedures, schedule a consultation with CSP360.

Tags: Don Warrant, accounting method changes, Form 3115

IRS Throws Curveball: Changing Procedures for Accounting Method Changes

Posted by Don Warrant on 1/28/15 9:06 AM

Stay calm and carry on with tangible property compliance; expect revised Forms 3115

accounting_method_changesThe IRS issued two new procedures for accounting method changes just as tax season was heating up, throwing a curveball into steps commercial property owners and their CPAs need to take to comply with the new Tangible Property Regulations.
 
Since the announcement on January 16, CSP360 has been inundated with questions about what these two new revenue procedures mean for CPAs’ efforts to get their clients into compliance. Here’s what you need to know about how to keep your clients happy by staying on the right side of the IRS.
 
  1. Continue calculating those 481a adjustments. We are sure that you have been taking our advice to start early on your 263(a) compliance efforts so you have plenty of time to act on tax-saving opportunities such as the soon-to-be-extinct late partial disposition election. The good news is that all of that work will not be for naught! The new revenue procedures do not change the steps required to bring taxpayers into compliance with the tangible property regulations.
  2. Update templates for making method changes. The primary changes in the new revenue procedures have to do with clarification of the rules for taxpayers who are under examination or in appeals, as well as for foreign corporations and partnerships, and a variety of other changes. These changes affect both eligibility for method changes and for 481(a) adjustments. If your firm uses templates to facilitate Form 3115 preparation, then make sure that those templates are updated to reflect all of these changes. If not, then you could overlook a procedure that could result in filing an improper method change—and potentially higher taxable income for your client.
  3. Expect updated Forms 3115. One consequence of the new procedures is that the existing Form 3115 now requires revision. Don’t be surprised if the IRS issues a revised Form 3115 very soon, as well as a second one specifically customized for use by eligible small taxpayers. Given the likelihood of new forms, consider holding off on filing Forms 3115 as long as possible in the event that you may be required to use the new Forms retroactive to filings since January 16, 2015.
  4. Change in procedures for removals. Remember when we told you that method changes for dispositions of property and for removal of that property must be filed, not only on two separate Forms 3115, but in two separate places? The new revenue procedure consolidates all automatic changes and requires that they all be filed with Ogden, Utah. However, the requirement to file two separate Forms 3115 for removal and disposition of property have not changed.

What Happens If You File Improper Forms 3115?

Our take? Don’t panic!
 
Here are the three things described in the new procedures that could happen if you file an improper Form 3115:

  • The director may make adjustments to bring the change into compliance
  • The director may deny the change in method of accounting and place the taxpayer on the proper method
  • The director may deny the change and require the taxpayer to use the old method
However, we believe the IRS will recognize that these new procedures blindsided the CPA community as we are entering our busiest time. For the most part, we expect that they will fix incorrect filings rather than deny a method change due to a procedural error.
 
Overview-of-Automatic-Method-Changes-1Just keep in mind that if that “fix” involves a positive 481(a) adjustment, then your client could be facing higher taxable income, penalties and interest. The new procedure requires the IRS to apply any adjustment to the oldest period covered by the 481(a) adjustment. The best way to keep your clients happy is to stay on the right side of the IRS by seeking out guidance from accounting methods specialists who can interpret these revenue procedures and file the forms appropriately.
 
If you have questions about how the new accounting method change procedures affect you and your commercial real estate clients, contact CSP360.

Tags: Don Warrant, accounting method changes, Form 3115

Navigating Building Demolition Rules to Retain Tax Benefits of Tangible Property Regs

Posted by Don Warrant on 1/20/15 9:04 AM

How to preserve commercial property owners’ depreciation tax deductions.

Commercial_property_ownersEvery self-proclaimed handyman has heard the saying “measure twice and cut once”.
 
Planning is key in all aspects of construction, and no less so in tax planning. If your commercial real estate client is planning a rehabilitation or major maintenance project on a building, careful planning can help preserve valuable depreciation deductions.
 
While the final tangible property regulations allow building owners to write off the remaining adjusted basis of retired building structural components, the final revenue procedure made clear that the rules of IRC Section 280B on demolition costs still apply. Under 280B, the remaining tax basis of a demolished building is added to the basis of non-depreciable land. However, a safe-harbor rule allows the building to continue to be depreciated if 75% or more of the external walls of the building remain in place as internal or external walls and 75% or more of the existing internal structural framework of the building remains in place. Therefore, once demolition removes 25% of the external walls and internal structural framework, the safe harbor no longer applies. When that happens, the client loses all future depreciation deductions related to the remaining basis of the building.
 
Tax Planning when 280B could apply
 
With some up-front planning, you can help your client save those depreciation deductions. Here’s how it works:
 
Your client acquires a building for use in an active trade or business activity. Your client may decide to substantially renovate or completely demolish the building in a future year whereby IRC 280B would apply.
 
In the year of acquisition, you engage CSP360 to perform a cost segregation study to properly classify assets as real or tangible personal property and accelerate depreciation deductions. In the same tax year, you make general asset account (GAA) elections for each class of assets based on the cost segregation study.
 
Under the tangible property regulations, the disposition of assets within a GAA are not recognized unless the taxpayer elects to do so. Therefore IRC 280B doesn’t apply because a disposition isn’t recognized for tax purposes. Your client can continue to depreciate the demolished building without having to capitalize the remaining tax basis to non-depreciable land. In effect, your client will be able to depreciate two buildings: the old building that was demolished and the new building that was constructed. A cost segregation study should be performed on the new building as well.
 
Are You Consulting with the Right Professionals?
 
tangible property regs This is one example where consulting with the right professionals can achieve substantial tax deductions for commercial building owners that you might otherwise miss. Do you have the right team in place that can provide this type of engineering, tax and accounting expertise?
 
Contact CSP360 to learn how our team of tax specialists, engineering professionals and accounting method specialists can help you identify and preserve depreciation deductions for commercial building owners.

Tags: tangible property regulations, Don Warrant

New Year’s Resolution for Landlords: Clean-Up Fixed Asset Schedules and Find Tax Benefits

Posted by Don Warrant on 1/14/15 9:13 AM

Landlords should consider whether tenants have removed portions of building components as a result of tenant improvements.

Fixed_Asset_SchedulesFor many, ringing in a New Year includes a list of resolutions to reorganize and clean out unwanted items. For landlords, cleaning up fixed asset schedules could be the best resolution of all. We have identified a common trend with commercial real estate leases that has benefitted many of our clients.

Partial Disposition for Landlords

Many commercial leases require the tenant to make leasehold improvements to the building. Thanks to the new tangible property regulations, when the tenant replaces a building component, the landlord has an opportunity to abandon the original component and write off the remaining tax basis.
 
For example, say a building tenant replaced the roof in 2013. The new roof would be capitalized on the tenant’s books and will never appear on the landlord’s fixed asset records. But since the old roof is on the landlord’s books, the landlord can file a method change to make a “late” partial disposition election and recognize a loss for the remaining tax basis in the old roof.
 
There is a danger to landlords in overlooking this opportunity to clean up their fixed asset schedules. If the landlord were to sell the building and have assets on the books that have actually been disposed of, that building owner could potentially have a depreciation recapture—which is taxed as ordinary income--on an asset that the client no longer owns. 

Planning Opportunity

How do you identify these opportunities for your commercial real estate clients? Start by reviewing lease agreements to identify those that require the tenant to make improvements to the building.
 
Next, review what improvements have been completed by the tenants that would have resulted in the removal of building components. If a tenant has made an improvement that resulted in the removal of a portion of a building component, then the landlord is eligible to recognize a loss for the remaining tax basis.

Act Now to Claim Deductions for Prior Year Partial Dispositions

Remember that 2014 is the only year in which taxpayers can file a method change to make a “late” partial disposition election and recognize a loss for the remaining tax basis of portions of building components disposed of in prior years. So once the 2014 extension deadline passes, the building owner loses forever the opportunity to write off portions of building components abandoned in prior years.
 
Time is also of the essence going forward. As your client’s tax adviser, you will need to stay on top of tenant improvements each year so that your client can recognize the abandonment of portions of building components in the current and future years on a timely filed original return. The election cannot be made on an amended return.

Give Yourself A Breather

CSP360 Deep Dive Program This clean-up process will take time, since your client may not be readily aware of all the improvements that tenants have made in 2014 and prior years. Therefore, we recommend filing an extension for the 2014 tax year to give yourself more time to identify and recognize partial dispositions of building components.
 
If you have questions about how your commercial landlords can take advantage of this fixed asset clean-up process, contact us to learn how we can help.

Tags: Don Warrant, tax saving opportunities, fixed asset

3 Ways That CPA Firms Are Going to Lose Clients Because of 263(a) Compliance

Posted by Don Warrant on 1/6/15 9:14 AM

Ignore these tax-saving opportunities at your peril!

263(a) Compliance OpportunitiesIt’s a scenario that haunts every CPA. The controller of your largest client returns from a CPE session and says, “I just heard about this great tax-saving strategy. Why didn’t you tell me about it?”

 
This tax season, CPAs who ignore the implications of the tangible property regulations are likely to see that scenario play out over and over again.
 
Here are a few of the ways that we believe CPA firms could potentially lose a client as a result of 263(a) compliance:

  • You were late to the “late partial dispositions” party. The final tangible property regulations allow building owners to take a current deduction on the disposition of any structural component that has not been fully depreciated—including, for a limited time, structural components of buildings that were disposed of in prior years. In fact, after you file your client’s 2014 tax return, the “late partial disposition” for building components disposed of in prior years is gone forever. If you fail to take advantage of this one-time opportunity to accelerate tax deductions into the 2014 tax year, and your client becomes aware of that oversight, perhaps resulting in additional taxes paid in a future year when the property is disposed of, then your client relationship could be jeopardized.
  • You missed de minimis. Imagine your client’s horror if he discovers from an IRS examiner or competitor CPA firm that he could have been writing off all amounts paid to acquire, produce or improve tangible property based on his book capitalization policy but you failed to make that election! CPAs who fail to make their clients aware of this new de minimis safe harbor could jeopardize their client relationship or lose the client to a competitor.
  • You left your small taxpayers exposed. It’s not easy being small. Especially when it comes to complying with complex tax requirements. That’s why the Treasury Department created the small taxpayer safe harbor—to simplify their compliance with the rules regarding building property. Imagine the displeasure of a client who pays for a complete 263(a) repairs vs. improvements study, only to discover that she could have written off all costs related to the building property free and clear simply by making an election!
tangible property regs These scenarios don’t have to play out in your firm. Establish a strategic partnership with tax, accounting methods and engineering specialists who will make sure that you are taking advantage of every opportunity to save your clients money and keep them in compliance with the tangible property regulations. Contact us to learn how CSP360 can help you help your clients.

Tags: cost segregation, 263(a) regulations, tangible property regulations

Telling Clients About Your (GASP!!!!!!) Fees for 263(a) Compliance

Posted by Jennifer Birkemeier on 12/30/14 9:48 AM

Hear that noise? That’s the collective intake of breath from property owners all over the U.S. when they hear estimates for 263(a) compliance... but there may be some good news, too....

Partial Property DispositionYour role as a tax practitioner is to make sure your client has complied with all applicable Internal Revenue Code and Treasury Regulations. And due to the final tangible property regulations, that compliance work will require significantly more time and expense this year than your clients might be expecting—anywhere from tens to hundreds of hours per client.
 
Why is the compliance load so burdensome with this round of regulations? In a word: documentation. In addition to the significant investment of time to understand these complex regulations, the IRS is expecting all taxpayers that own or lease buildings to file at least one Form 3115 for method changes required to comply with the new regulations impacting building property. Otherwise, the taxpayer must show why such method changes weren’t required for their building property. As a tax return preparer, your professional standards for tax return preparation require that you document your client’s compliance with these Regulations to avoid potential preparer penalties.

The Good News: The Spoonful of Sugar That Will Help the Medicine Go Down!

The good news is that most commercial building owners are eligible for method changes and elections that will result in federal tax deductions. And those onerous and time-consuming Forms 3115 will protect those tax deductions in the event the IRS examines your client’s tax return. 
 
So, to fulfill your own professional standards and to demonstrate to building-owning clients the benefits of compliance, tax return preparers should discuss (and clearly document the results of those discussions) each of the following tax-saving opportunities from the tangible property regulations:
 

  1. De minimis. Making this safe harbor election allows your clients to write off amounts paid to acquire, produce or improve tangible property—up to $5,000 per item or invoice for clients that have an Applicable Financial Statement and follow written accounting procedures ($500 for clients without an AFS). In addition to reducing taxable income, this safe harbor will protect amounts expensed in the event of an IRS examination.
  1. Small taxpayer safe harbor. This safe harbor, which is made on a building-by-building basis by eligible small taxpayers, also serves to reduce taxable income and to protect all amounts expensed from IRS examination. The total expenditures for the year for each qualified building may not exceed the lesser of $10,000 or 2% of the original cost of the building. If total expenditures for amounts paid to maintain and improve the building for the year exceed this limitation by any amount, the safe harbor is not applicable for that building.
  2. Dispositions. The “late partial disposition” election, which allows a tax deduction for portions of building property disposed of in prior tax years, is only available for the 2014 tax year. So use it or lose it!
  1. Improvements to tangible property. Many building owners have unknowingly capitalized repairs in prior years that now can be expensed. The identification of capitalized repairs is based on the new unit of property rules, which the regulations have defined as the building and its structural components, and eight specific building systems. A new three-part test is applied to each unit of property to determine whether the amount is a deductible repair.
tangible property regs Failing to identify and make elections and/or method changes that will reduce or eliminate your client’s income tax liability and protect your client’s expenses from IRS examination could have repercussions if examined by the IRS or a competitor. Therefore, best practice is to identify those elections and method changes that are applicable and document your client’s decision—whether or not those elections and method changes will be made. It is likely that such elections and method changes will substantially reduce your client’s costs to comply while you satisfy your professional standards as a tax return preparer.
 
Need help identifying opportunities to lower your clients’ tax bills while also bringing them into compliance? Read our guide to using the tangible property regulations to help clients and gain new business.

Tags: 263(a) regulations, tangible property regulations, Jennifer Birkemeier, Late partial dispositions, Form 3115

Subscribe to Email Updates

Our Latest Resources

Tax slashing hero

cost segregation

CSP360 Deep Dive Program

Follow Us