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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

Execute on This Triple Play Opportunity Presented By Final Tangible Property Rules

Posted by Jennifer Birkemeier on 12/10/14 11:39 AM

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.

179D Energy Eficiency DispositionsIn 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.

tangible property regs 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.

Tags: Section 179D, tangible property regulations, Jennifer Birkemeier, tax saving opportunities, CPA partnership program

Form 3115 Change of Accounting Method Mistakes Could Mean Losing Clients or Censure by the IRS!

Posted by Don Warrant on 12/2/14 9:19 AM

3 deadly pitfalls created by the Tangible Property Regulations and Form 3115.

Here’s a scary scenario: You and your 263(a) strategic partner have done the hard work to identify tax deductions for your clients’ repairs and maintenance or dispositions of tangible property—only to have the IRS come back and disallow those deductions because you made a seemingly innocuous mistake when filing the Form 3115—Application for Change of Accounting Method.

tangible_property_regs-3The hard truth is that most CPA firms are not accounting methods specialists. In fact, until the Tangible Property Regulations were finalized, you may not have had much need to file a Form 3115 with your clients’ tax returns. But suddenly, the IRS expects every property-owning taxpayer to file at least one Form 3115 with 2014 tax returns.

Through a series of revenue procedures, the IRS and Treasury have spelled out the steps they expect taxpayers and their return preparers to follow in order to qualify for automatic method changes. And if you miss one small detail, then:

  • The IRS could deem the method change impermissible, which means that any associated tax deductions would most likely be disallowed. And as a result, your client’s tax bill (along with his ire) will increase.
  • It also means that you, as the return preparer, could be exposed to penalties. In the most egregious cases—if the IRS detects a pattern of improper method changes—you may be contacted by the IRS for a further investigation of your tax practice impacting Form 3115 preparation.

Watch Out for These 3 Pitfalls in Filing Form 3115s

Let’s face it: Revenue procedures are not easy reading for anyone. But our clients rely on us to keep them in compliance with the letter of the law. There is no shortcut for a thorough reading and understanding of these IRS rules, so if your practice does not already have access to accounting methods specialists, then we recommend bringing in that expertise from another source.

Here are just a few of the arcane changes that are all-too-easy to overlook in the voluminous new revenue procedures:

  1. When a cost segregation study and a disposition analysis are conducted on the same building, both method changes should be reported on a single 3115—not two separate forms – to obtain a waiver of scope limitations that could affect the ability to make an automatic method change for the cost segregation.
  2. Method changes for dispositions of property and removal of that property must be filed on two separate Forms 3115. And get this: Those 3115s must be filed in two completely different places—removal costs go to D.C. while dispositions must be filed with Ogden, Utah. Do the two offices ship misfiled returns from one office to the other? Who knows—but do you really want to chance it?
  3. Manufacturers, retailers, and other businesses that are subject to the Uniform Capitalization Rules (UNICAP) must capitalize a portion of costs as year-end inventory and factor that capitalization into the 481(a) adjustment.

Rely on Accounting Methods Specialists

Overview-of-Automatic-Method-ChangesThese seemingly innocuous mistakes—filing one Form 3115 instead of two, or two instead of one—can have serious implications for your clients and for you as the preparer in the form of penalties, back taxes and (scariest of all) censure by the IRS. So cover your bases by seeking guidance from professionals with the experience to interpret these revenue procedures and file the forms appropriately.

Backed by Top 100 firm Freed Maxick, CSP360 has assembled a team of accounting methods specialists who work closely with our cost segregation engineers. So when we partner with CPAs to minimize clients’ taxes through fixed asset reviews, dispositions analysis, cost segregation and energy efficiency studies—we also defend that tax treatment by properly filing Forms 3115 so that those accounting method changes will stand up under IRS review. Contact us to learn how our accounting method change specialists can help you.

Tags: tangible property regulations, accounting method changes

How a Spoonful of Sugar Can Sweeten the Pill of Tangible Asset Compliance

Posted by David Barrett on 11/18/14 9:39 AM

3 messages that will help the medicine go down for clients owning commercial property.

tangible_property_regs-2You know that all of your clients and prospects must be in compliance with the final tangible property regulations by the time you file their 2014 returns. But how do you convince the client or prospect that the value is greater than the cost of compliance—especially for complex cases that can require hundreds of hours of your time?

Mary Poppins knows that a spoonful of sugar helps the medicine go down, and CPAs can use the same idea when communicating with commercial real estate owners about complying with the tangible property regulations.

Following are a few verses from a sweet song of tax minimization that you can use in your marketing materials or your one-on-one conversations with clients and prospects to help the pill of compliance go down easier.

“Do you own commercial property that requires frequent repairs? If so, then you could be eligible for tax savings that could more than offset the cost of compliance with the new tangible property regs.”

Your prospects and clients are likely cringing as they envision all the money, time and effort they will have to spend to bring their accounting into compliance with the tangible property regulations. Imagine their relief when they discover that the tax savings could far exceed the costs of compliance.

Commercial real estate such as office space, hotels, restaurants and manufacturing facilities all require expensive and frequent repairs and updates. Under the new regulations, many of these updates now constitute deductible repairs. And since commercial property owners can go all the way back to 1987 to deduct previously capitalized costs that now qualify as repairs, the total current tax deduction just from repairs and maintenance can easily reach tens or even hundreds of thousands of dollars.

“We have a limited-time opportunity to reap immediate tax benefits for prior year dispositions.”

Sugar seems sweeter when it’s in limited supply. The final dispositions regulations that came out this summer put an official time limit on recognizing a loss for prior year dispositions of structural components, and that deadline is December 31, 2014. While taxpayers will continue to be able to claim a loss on the disposition of a portion of an asset when the disposition occurred in the current tax year, the opportunity to go back to prior years to take deductions for dispositions will disappear forever after the 2014 filing season. Communicating this limited-time opportunity tends to make clients and prospects much more inclined to start the compliance process as early as possible to avoid losing out on that incentive.

“We could uncover opportunities to slash your tax bill through accelerated depreciation deductions while bringing you into compliance.”

Who doesn’t like getting two for one? A cost segregation that is conducted in conjunction with the 263(a) repair and maintenance review can deliver a sweet combination of current deductions, accelerated depreciation, and regulatory compliance. While a cost segregation study does not bring clients into compliance with the tangible asset regulations, the study can accelerate depreciation of building acquisition and improvement costs and segregate the cost of the eight building systems for purposes of applying the new improvement rules and future dispositions. So now is an ideal time to evaluate whether the client has property that would qualify for accelerated depreciation.

tangible property regs While these messages certainly sweeten the pill of compliance, your success will depend on being able to back those sweet words up with the tax and engineering expertise required to recognize these opportunities and make the required accounting method changes.

Contact CSP360 to find out how our engineering, tax and accounting methods specialists can partner with your firm to sweeten the pill of tangible property regulation compliance for your clients and prospects who own commercial real estate.

Tags: tangible property regulations, David Barrett, dispositions of tangible assets

5 Questions Accounting Firms Should Ask to Uncover Cost Segregation Opportunities

Posted by David Barrett on 11/11/14 9:09 AM

Purchase, construction, exchange or inheritance of commercial real estate can add up to huge tax savings.

cost_segAs you were finalizing your clients’ 2013 extended corporate and partnership tax returns, did you find yourself wondering whether there was any way you could have saved them even more money? A cost segregation study might just be the key to putting more cash in the pockets of many of those clients.

Here are 5 question that could result in huge tax benefits for your clients:

Did the client build or buy a building with a cost basis of at least $500,000 and a high proportion of nonstructural elements?

The good news for your clients is that a cost segregation can be conducted on property that was purchased, constructed, renovated or expanded all the way back to 1987. Hotels, restaurants, apartment buildings, golf clubs, retail establishments, manufacturing facilities, restaurants, auto dealership facilities, and office buildings are among the types of buildings that are more likely to provide the high proportion of nonstructural components needed to justify the cost of the study through accelerated depreciation deductions.

We generally find that about 20% to 35% of the purchase price of these types of properties can be classified as 5-, 7- or 15-year property. However, the true answer can only be revealed through a cost segregation study conducted by specialists with tax and engineering expertise.

Does the purchase agreement include an allocation of purchase price?

If so, proceed carefully. Ask for a copy of the purchase agreement and review it with your firm’s cost segregation strategic partner. If you don’t have a strategic partner, click here to learn more.

If the agreement specifies an allocation of the purchase price between real and personal property, the client might not be able to re-allocate those costs after the fact. Why? Because in Peco Foods, Inc. v. Commissioner, the Tax Court ruled that the parties were bound by the allocation of the purchase price within the agreement, which could not be altered by a cost segregation study.

While your hands may be tied with regards to that specific property, it is still worthwhile to discuss this lost opportunity with any client who is looking to purchase additional commercial property. In the future, if your client seeks your counsel up front, then you bring in your cost segregation strategic partner to advise the client on how to leave the door open for a cost segregation study. Or better yet, you can encourage the client to negotiate a cost segregation study on the property before the sale closes.

Is the client considering building commercial property?

Accelerated depreciation deductions can drastically improve the cost-benefit calculation of new building projects. Consider a construction project with a cost basis of $1 million. If 20% to 35% of the costs can be allocated to 5-, 7- and 15-year property, then the client could accelerate tax deductions of $80,000 to $140,000 into that period, significantly lowering the total construction costs.

Is the client inheriting commercial real estate?

When a family member inherits rental property from another family member, that rental income has the potential to create a burdensome tax liability. But by conducting a cost segregation on the portion of property that receives a step-up in basis (i.e., IRC Sec. 754 basis adjustment), your client may see some relief from that additional tax burden.

Is the client conducting a 1031 like-kind exchange?

You may already know that a property owner can defer gain (and thus tax) on the exchange of like kind property. But did you know that the property owner might be able to benefit from even greater tax savings by conducting a cost segregation on the replacement property? This combination can result in increased cash flow for the property owner—and a happier client for you.

Don’t despair if you missed the opportunity for 2013! Now is the perfect time to dig deep for opportunities to accelerate depreciation deductions and delight your clients with a significantly lower 2014 tax liability.

CSP360 can help you become a tax-slashing hero. Contact us to find out how we are partnering with CPA firms around the country to delight their clients with lower tax bills and greater cash flow through cost segregation and other tax strategies based on an engineering foundation.

Tags: cost segregation, commercial real estate, David Barrett

3 Lessons for Building Your Commercial Real Estate Practice Using 179D

Posted by Don Warrant on 11/4/14 9:38 AM

Create urgency through the potential loss of millions in tax deductions—and align with a strategic partner who can execute.

commercial_real_estateIn last week’s post, we shared the story of how a CPA firm lured back a $50,000-a-year client using the 179D Energy Efficient Commercial Building Tax Deduction to recover more than $1 million in taxes.

The even more exciting news? This is far from an isolated incident. In our work with CPA firms throughout the United States, we have uncovered opportunities just like this countless times, positioning those CPAs to delight their clients with lowered tax bills and greater cash flow.

Here are our top three takeaways about how you can use 179D to build your tax practice:

  • 179D opens doors. Let’s face it: “We do a better tax return” as a marketing message just doesn’t cut it anymore (if it ever did). What commercial property owners really want is to free up cash flow for more profitable use, and engineering-based tax incentives are an ideal way to put that cash back in their pockets. While it is currently expired, 179D deductions may be available for prior years—all the way back to 2006, in some instances. For owners of as hotels, office buildings, retail stores and manufacturing facilities that have required updates to improve their energy efficiency, that lookback can represent a tax deduction of millions of dollars. And since most CPAs don’t have the knowledge or the engineering talent to complete a 179D study, working with the right strategic partner and educating your prospects about this potential windfall could propel you to the front of the pack.
  • Benefits of association. You probably know that qualifying for the 179D deduction requires an independent certification by an engineer licensed in the state where your client is based. Perhaps this seems like an insurmountable hurdle, but it doesn’t have to be. As the CPA in our 179D case study discovered, aligning with the right strategic partner (hmmm... are you seeing a pattern here?) that has the proper resources and personnel can provide all of the business-building benefits of 179D without having to undertake the permanent overhead and risk of bringing those resources in-house.
  • Limited-time offer. Good business developers know the value of urgency. And if your clients or target prospects are architects who design public schools and government buildings, then you have an urgent message to deliver, because the lookback available to those designers is just three years. As of right now, only green buildings and retrofits for government entities and schools performed in 2011 and later qualify for the deduction. And once the 2014 tax return is filed, 2011 will be off the table. For some architects and designers, those missed tax deductions can add up to millions of dollars. Make sure the designers of public schools and government buildings in your target market know that every day they delay a 179D study increases the chances that they are letting money slip through their fingers.

CSP360 Deep Dive Program Here’s the thing about creating a sense of urgency: You have to be prepared to execute. Before you start singing the song of the potential tax benefits of 179D, make sure you have the right resources to deliver those benefits. A strategic partner such as CSP360 equips you with the engineering tools and expertise you need to confidently bring this tax-saving message to market and build your tax practice with progressive, growing commercial property owners and architects. Contact us to learn more about how we can help you spot 179D opportunities in your current client base and with your target prospects.

Tags: commercial real estate, Section 179D

How A CPA Firm Lured Back A $50,000 Architect Client With $1 Million in 179D Deductions

Posted by Don Warrant on 10/28/14 9:24 AM

Impressed by tax savings for energy efficient designs of public buildings, client re-hires firm for tax planning and compliance work.

179D_DeductionsImagine that you are a business owner who just realized that you missed out on hundreds of thousands of dollars in tax deductions that you could have claimed as a result of building or designing energy-efficient buildings. How would you feel about the CPA firm that let those opportunities pass you by?

Now imagine that you are the CPA who educates that business owner about how she could realize those tax savings and redirect that much-needed cash into her business operations. Do you think that success would help position you as the go-to provider for all of the firm’s tax planning and compliance needs?

The answer, of course, is YES! We have seen this scenario play out time after time. In fact, with CSP360 serving in the background, a Southeastern regional CPA firm recently won $50,000 in recurring work from a former client by educating the owner about how her architectural firm could claim current deductions for their designs of energy-efficient public schools and universities, as well as government and municipal buildings.

Here’s how this architect learned that she could slash her firm’s tax bill and free up cash flow using the 179D deduction:

The architect asked her (soon-to-be former) CPA about whether her firm could claim a deduction under 179D. The uninformed CPA assured her (falsely) that qualifying for the credit would be overly burdensome, and the firm would not be likely to reap significant benefit.

But that answer never fully satisfied her. So when she received an invitation to attend a U.S. Green Building Council (USGBC) chapter meeting about the 179D Energy Efficient Commercial Buildings Tax Deduction, she immediately accepted. Interestingly, the speakers included a representative from a regional firm that used to handle her firm’s tax and accounting work. She hadn’t realized that the firm was so closely aligned with the USGBC, and she was intrigued.

Yes, architects can qualify for 179D

What she learned at that 179D seminar surprised and delighted her—but it also disappointed her to confirm that her current CPA had really let her down! The presenters shared examples of dramatic tax savings achieved by designers of public school buildings—the very types of buildings that this architect had been designing for more than six years. They explained that the 179D provision had expired at the end of 2013, but that designers of public schools and government buildings can amend tax returns to claim tax deductions for buildings or retrofits from any open tax years.

She also learned that, while it is true that qualifying for the credit requires the designer of public buildings to obtain an “allocation letter” from the government agency that owns the buildings, as well as independent certification by a licensed engineer, these hurdles are completely manageable with a knowledgeable and experienced partner by your side.

Good news and bad news

This architect lost no time in meeting with the regional CPA firm and CSP360 to discover just how much she could recover using the tax deduction. She was not disappointed! After conducting a thorough analysis of the architect’s records and performing site visits, the tax and engineering specialists discovered that the architect qualified for a total of more than $1 million in tax deductions for public buildings designed in the past three years.

The bad news? The architect could have lowered her tax bill even more with tax deductions for previous years if only she had known about the opportunity sooner. Because designers of public buildings only qualify for a 3-year lookback window (taxpaying building owners can look all the way back to 2006), she had missed out on several hundred thousand in tax deductions for public buildings the firm designed prior to 2011.

The spectacular news for this regional CPA firm? This former client, who had left the firm for a competitor almost a decade ago, was so impressed with these tax savings that she re-engaged the CPA firm for all of her tax planning and compliance work, worth about $50,000 per year.

Are you missing out on opportunities to win new business with architects and designers of public buildings—plus owners of commercial buildings? CSP360 partners with CPA firms across the country to spot these opportunities and perform the energy efficiency certification required to qualify for the 179D Energy Efficient Commercial Building Tax Deduction.

Tax Slashing Hero

Tags: Section 179D

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