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Low-Hanging Fruit: 3 Tangible Asset Safe Harbors That Can Save Your Clients Money

Posted by Don Warrant on 7/29/14 9:44 AM

Taxpayer-friendly safe harbors are easy ways to delight your clients!

tangible asset safe harborsAre you so busy solving complex tax problems that you miss low-hanging fruit right in front of your nose? A number of expanded safe harbors under the new tangible asset regulations represent some simple ways to increase tax savings while achieving compliance—especially for your smaller owners of residential and commercial real estate.

Before you move on to higher-value opportunities for tax minimization, take a look at these three opportunities to save your clients taxes while protecting them from the taxman.

Don’t Miss the De Minimis Safe Harbor Election

Almost every client can benefit from taking the de minimis safe harbor, which now is applied at the invoice or item level (instead of in aggregate). The final tangible asset regulations also removed the ceiling on the de minimis safe harbor election.

Here are the facts: Any taxpayer with an applicable financial statement (AFS) and written accounting procedures that it follows may deduct up to $5,000 per item or invoice for amounts paid to acquire, produce or improve tangible property—without limit. The final regs also allow clients without an AFS to deduct amounts paid up to $500 per invoice or item, if the taxpayer has accounting procedures that it follows and treats those expenses accordingly. (Note that the accounting procedures for these smaller taxpayers do not have to be written.)

The removal of the ceiling and expansion to include clients without an AFS opens up significant opportunities for you to delight your clients with increased tax deductions. And taking refuge under this safe harbor provides you and the taxpayer with a layer of protection if the IRS comes calling.

More Opportunities to Deduct Materials and Supplies

Every commercial property owner has materials and supplies, and now they can deduct even more of those routine items.

The facts: The final tangible property regulations increased the limit for treating an item as a material or supply to $200 (up from $100 under the temporary regs), which means those espresso makers and deluxe nameplates are now fair game. The final regs also retained the 12-month rule, which says that an item with an economic useful life of 12 months of less can be deducted.

The result? Even more tax-minimization opportunities to delight your clients!

Shield Your Small Taxpayers

We all have those clients with just one or two small rental properties. The small taxpayer safe harbor was designed just for these clients, shielding them from having to capitalize costs paid or incurred for repair, maintenance or improvement of building property.

The facts: Owners of buildings with an unadjusted basis of $1 million or less and who generate average annual gross revenue of $10 million or less can deduct any costs paid or incurred for the repair, maintenance or improvement of building property—up to $10,000 or 2% of the building’s unadjusted basis, whichever is less.

Because this election is taken on a building-by-building basis, it represents significant flexibility for commercial or residential real estate owners with multiple smaller properties—which means more ways to reduce taxable income and increase cash flow. The upshot is that if you have these Schedule E property-owners on your client list, the small taxpayer safe harbor will save them money and protect both of you in the event of an IRS audit.

These expanded safe harbors are the tax regulators’ way of shielding taxpayers (especially small businesses) from the hardships that the tangible property regulations might otherwise impose on them. Make sure that you are looking out for your clients’ best interests by taking advantage of every opportunity to reduce their taxable income and protect them in the event of an audit.

CSP360 can help you delight your real estate clients by finding opportunities to save them money while bringing them into compliance with the tangible property regulations. Contact us to talk about how we can partner to delight your clients through services such as fixed asset reviews and capitalization vs. expense consulting.

Tags: cost segregation, New Tangible Asset Regs

Mid-Year Fixed Asset Reviews Make Tax Time Smoother, More Profitable For Clients

Posted by Don Warrant on 7/22/14 9:16 AM

Don’t wait to find tax savings opportunities that will delight your commercial property owning client.

Mid-Year Fixed Asset ReviewWith the 2013 tax season fresh in your memory—or ongoing, as you continue to prepare extended returns—you may not want to think about the 2014 tax season just yet.

But when it comes to finding opportunities to get tax savings or advantages from the new tangible property regulations, CPAs who wait until next spring to review their clients’ fixed asset accounting methods could find their client base poached by competitors who beat them to the punch.

Any time you invest now in 263(a) tax planning will pay big dividends when spring rolls around in the form a smoother, more efficient process for all involved, and even more importantly, the potential for a HUGE check from Uncle Sam for your client.

Now is the time to conduct a mid-year review of your property-owning clients’ fixed asset and depreciation schedules. By investing the time in that review now, you will:

  • Clean up depreciation and fixed asset accounts by adopting new accounting methods and procedures.
  • Identify previously capitalized costs that can now be classified as repairs and eligible to be deducted
  • Make sure clients are following the correct accounting methods and recording fixed assets in accordance with the new regulations and their own capitalization policy—and hence are able to support those current deductions.
  • Present your clients with the opportunity to realize those tax savings on either the extended 2013 return or the 2014 tax return.

Given the new unit of property definitions contained in the tangible property rules, your commercial real estate owning clients are especially likely to require a number of accounting method changes. But these regulations will affect almost every client in one way or another; in fact, Treasury is expecting at least one Form 3115 and at least one election with every 2014 tax return.

Here are 4 steps you can take to facilitate this invaluable review and make your clients happy now.

1. Stratify your clients between small, medium and large.

Whereas your smaller clients might own one commercial property that requires a single accounting method change and an election or two, the large clients are those with multiple commercial properties (such as hotel or office complex owners) who will require a full-blown multi-phase work plan that addresses each area of the regulations.

2. Start with the big fish.

These are the clients who represent the greatest opportunities to realize tax savings—and demonstrate your value. Did a hotel owner replace HVAC units in multiple properties this spring? Did a manufacturer replace expensive batteries in multiple forklifts? Did the owner of an office complex replace a roof? These big-ticket items, which many commercial property owners capitalized in the past, now are likely to qualify as deductible repairs.

3. Create templates and checklists to facilitate compliance.

This is the step that is going to streamline the time you spend on your smaller and medium-sized clients so that you can invest more time with the big fish. There are likely a number of method changes and elections that are applicable to almost all of your clients. For example, most clients will require accounting method changes due to overcapitalization, and many will require method changes for materials and supplies. Or, perhaps you have a number of clients who will adopt the safe harbor for routine maintenance. Prepare these templates now, and you will be significantly closer to identifying tax-saving opportunities once you receive each client’s year-to-date fixed asset schedule.

4. Turbocharge tax savings.

Identifying deductible repairs that were previously capitalized is just the tip of the iceberg when it comes to a commercial property owner’s potential tax savings. By performing a cost segregation study to assign costs to the major structural component and each of the newly defined building systems, those clients could uncover a plethora of opportunities to accelerate depreciation.

Tapping into the engineering expertise of a qualified cost segregation/263(a) specialists is critical to identify costs that kept the building in normal operating condition (as opposed to those costs that improved the UOP). A review of past years’ cost segregation studies may also reveal a number of opportunities to take current deductions for retired assets, including dispositions of leasehold improvement property.

When it comes to uncovering tax-saving opportunities by reviewing your clients’ fixed asset accounting methods, it’s best not to wait until Uncle Sam is breathing down your neck. If you are looking for guidance on conducting a mid-year fixed asset review, contact us to find out how we can help you grow your commercial real estate niche through our CPA Partnership Program.

Tags: commercial real estate, tangible property regulations, Don Warrant, tax savings from repairs vs capitalization

How to Explain the Tangible Property Accounting Method Changes to Your Clients…and See Them Smile

Posted by Don Warrant on 7/16/14 9:44 AM

Quick Answer: Tell them about the tax savings that will more than offset the cost of compliance.

Tangible_PropertyBy now, your clients with commercial real estate know that there are new regulations about how they must account for tangible property. You’ve explained the new regs to them, sent them e-alerts, maybe even hosted a webinar on the topic.

So why is it, when you propose a fixed asset review to bring your client’s accounting methods into line with the tangible property regulations, you are met with blank stares and noncommittal hedging?

Maybe you’re sending the wrong message. As they say in newspaper writing, don’t bury the lead – tell them a story about tax savings instead of a miserable tale of compliance.

Let’s face it: while a few clients truly are motivated by the “stick” of potential penalties for noncompliance, most clients will be much more enthusiastic when they see the “carrot” of tax savings.

Don’t Wait for the Client to Give you the OK

Go ahead and review those fixed asset schedules and identify those repairs that they were capitalizing. While you’re at it, bring in a cost segregation/263(a) specialist (like CSP360) who has the engineering background to identify opportunities to accelerate depreciation on building systems, dispose of abandoned property or perform energy efficiency studies. When you lead the client discussion showing these tax-saving opportunities, we’re pretty sure that you’ll see smiles instead of frowns or blank stares.

Dealing with Client Resistance

Of course, you still will likely have some clients who resist spending the time and money to change their fixed asset and depreciation schedules. Here are a few tips about how to address some of the most common sources of pushback from clients about why they must deal with these pesky accounting method changes:

“Why do I have to do this?”

The short answer is: The federal government says so. The Treasury has indicated that it expects every taxpayer to file at least one Form 3115.

“But our accounting methods already line up with the final tangible property regulations.”

First of all, how can you be 100% in compliance with regulations that didn’t exist previously? At the very least, almost every client will require method changes for repairs and maintenance or materials and supplies. But even assuming that your client truly is in compliance, Treasury still expects to see at least one Form 3115 on every 2014 return, showing what steps you took to comply with the rules.

“What’s the worst that could happen if we don’t change our accounting methods?”

Well, the IRS could decide that the client filed an incomplete tax return and could assess penalties, plus interest on any unpaid taxes. Also, you will be required to include Form 8275-R with the return to show that you do intend to comply with the regs in the future. Not only is this a short-term solution (you can’t do this two years in a row), it also can serve as a red flag for the IRS to put your client in queue for an audit or other form of review. Remember that compliance examinations regarding tangible property accounting methods will commence with the 2014 tax year.

“OK, I get it. We need to comply. What do I have to do?”

Here’s your opportunity to show your clients that you are a proactive tax advisor looking out for their best interests. You have already reviewed their prior years’ capitalized costs, so you are able to present them with prequalified tax deductions and give them the option of taking these deductions on their extended 2013 return or the 2014 return. Because the costs of compliance will likely be offset by those tax savings, your client will now be whole-heartedly on board with making those changes.

Get More Help

Looking for a comprehensive plan to bring your clients into compliance—while also uncovering numerous tax-saving opportunities? Contact us to talk about partnering to delight your clients with engineering-based tax solutions and services like cost segregation and 263(a) analyses.

Tags: tangible property regulations, Don Warrant

Get Happy: How Tangible Property Regs Make Commercial Real Estate Owners Smile

Posted by Don Warrant on 7/2/14 9:27 AM

Routine maintenance and disposition rules put cash in property owners’ pockets.

tangible_property_regsWhen you’re telling your commercial real estate clients about the new tangible property regulations, do they start singing that catchy Pharrell Williams song, Happy? Well, they should. Here are just a few reasons why.

Routine Maintenance Safe Harbor—Like Christmas in July

Because the final tangible property regulations expand the routine maintenance safe harbor to building property, a number of expenses that previously had to be capitalized now qualify as current deductions.

Tenant improvements are the perfect example. Say your client owns a number of office buildings and has been capitalizing tenant improvements for years. These expenses likely now qualify for current expensing, and a 263(a) repair and maintenance review could turn up a goldmine of tax deductions, potentially going all the way back to 1987.

Tidiness Has Its Benefits

Pharrell may “feel like a room without a roof,” but most commercial property owners have too many roofs—at least on their books.

Now, the tangible property regulations allow all of those extra roofs to be swept off the client’s fixed asset schedule in a single 481(a) adjustment—resulting in a big reduction in taxable income in the current year. Whereas historically the roof was considered a structural component of a building and could not be disposed of separately, the new definitions of UOP allow taxpayers to make an election to dispose of a structural component or a portion thereof.

A Cumulative Effect

We find that commercial property owners with at least $500,000 in capitalized improvements have significant potential to benefit from a review of their fixed asset schedules to identify repair and maintenance activities and opportunities for partial dispositions, while also bringing them into compliance with the tangible property regs.

Since taxpayers can look back all the way to 1987 when calculating the 481(a) adjustment, the potential tax savings from current expensing of previously capitalized expenses can amount to hundreds of thousands or even millions in tax deductions. That huge reduction in taxable income—which they can choose to take on extended 2013 returns or 2014 returns—is sure to put a smile on your client’s face.

CSP360 can help you delight your commercial real estate clients with lowered tax bills and greater cash flow. Let us show you. Sign up to take a Deep Dive into the CSP360 process.

Tags: tangible property regulations, Don Warrant, dispositions of tangible assets

CPA Firm Growth Opportunity: Real Estate, Cost Segregation Markets Heat Up

Posted by David Barrett on 6/12/14 9:07 AM

Higher percentage of Top 100 accounting firms see revenue growth from cost seg services.

cost_segregation-1Accounting Today Top 100 firms are realizing the top-line benefits of offering cost segregation services. Is it time for your firm to explore this opportunity to grow revenues and delight clients and prospects?

In the 2014 survey, nearly half of responding firms saw increased revenue from cost segregation, up from roughly 40 percent of firms in each of the past two years’ surveys.

Correspondingly, industries that have the most potential to benefit from cost segregation studies – real estate , construction,and manufacturing - are now among the top niche practice areas. That’s great news for firms looking for more growth via engineered tax opportunities.

  • Nearly 80 percent of 2014 Top 100 firms saw increased business from real estate clients, bumping the niche to third on the list of top client segments, up from fifth in 2013.
  • Construction moved up 14 percentage points to 66 percent of responding firms, putting it sixth on the list of top client categories, up from eight in 2013.
  • Manufacturing businesses continue to drive growth for the largest percentage of responding firms, with just over 80 percent saying that their firm is increasing business within that industry.

What’s driving the trend?

A confluence of factors is driving the opportunity for new revenue for CPA firms via cost segregation.

First, the final tangible property regulations have turbocharged the value of a cost segregation study. By combining a cost seg study with a 263(a) repair and maintenance review, clients can potentially double their tax savings. That’s a great story to bring to clients and prospects!

Are you aware that clients for whom your firm has performed a cost segregation in the past are ideal candidates for a 263(a) review? Since a portion of the heavy lifting was already completed during the initial cost seg study, the client will see a lower overall cost of 263(a) compliance.

Second, the value of commercial real estate is beginning to recover. As wealthy individuals and businesses increasingly look to acquire and improve commercial properties, CPA firms that can demonstrate their ability to lower those property owners’ tax bills will maintain and build their competitive advantage.

Open the door with commercial real estate owners

Cost segregation provides the perfect door opener with growth-oriented business owners. And once that door is open, you have easier access to additional corporate and personal tax services, or even the annual audit.

Think about it. Once you’ve demonstrated your firm’s ability to deliver tens or even hundreds of thousands of dollars in tax savings through cost segregation and tangible property reviews, clients are likely to be receptive to other tax-minimization opportunities, from 179D to location based credits and incentives.

Recognizing hot trends is one thing. Being in a position to take advantage of those trends requires access to the right expertise and tools. Learn more about the 5 Key Lessons for Integrating Cost Seg Studies into Your Firm’s New Business Program.

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

Tangible Property Rules on Accounting Method Change 184: Make Sure Your Clients Capture ALL the Deductions They Have Coming to Them (Part 3)

Posted by Jennifer Birkemeier on 5/23/14 9:09 AM

A little bit DOES NOT go a long way when it comes to applying rules to expense or depreciate tangible assets.

We all pick and choose the rules we want to follow. Generally, we’re law-abiding citizens, but we all have a certain stretch of road where we can justify going just a little bit (or a lot) faster than the posted speed limit. As reasonable as your excuses for noncompliance may be, your local law enforcement officer is completely within his rights to ticket you.

The same goes for the IRS and the U.S. Department of the Treasury. Representatives from the Treasury Department have confirmed that in order to comply with the tangible property regulations beginning with the 2014 tax year, taxpayers cannot pick and choose which sections of the regulations they want to adopt. Non-compliance or only addressing the favorable method changes can result in penalties imposed upon both taxpayers and return preparers.

By dotting all your i’s and crossing all your t’s when keeping commercial property owning clients in compliance with these new regs, your CPA firm will be better able to identify (and defend) your clients’ current deductions.

The rules

The Treasury Department expects every taxpayer with tangible property to file at least one Form 3115 under accounting method change 184 to address each of the following:

  • Change in defining the unit of property (UOP)
  • Current deduction of tangible property repairs that were previously capitalized
  • Capitalization of improvements to tangible property that were previously expensed

The taxpayer also must compute a cumulative 481(a) adjustment, which will either result in a reduction in taxable income that can be deducted in the current year or an increase in taxable income that will be spread over four tax years.

RiskWhat’s at risk

While you may be tempted to only make the changes that are favorable for your client, doing so puts you and your client at risk. Following only one portion of the accounting method change procedures may be considered an impermissible method change that could lead to the IRS disallowing those valuable deductions—and your client could end up with a higher tax bill plus possible interest and penalties.

As the tax return preparer, signing a 2014 tax return that is not in compliance with tangible property regulations violates your professional responsibilities under Circular 230, potentially exposing you to penalties and even suspension of your license.

The opportunity

With the new regulations that clarify deductible repairs, your firm has an opportunity to identify a treasure trove of tax-minimization opportunities for clients with tangible property. Many clients and their CPAs have been extremely conservative with respect to treatment of tangible property expenses. As a result, they now have an opportunity to clean up their fixed asset records and take a current deduction for repairs performed on those assets based on available records. But you will only be able to support and defend those deductions if you follow all the rules.

To take advantage of this tax-minimization opportunity while bringing your clients into compliance, we advise CPAs to take the following approach:

  1. Conduct a thorough repair and maintenance review for each client that owns tangible property. This review can be especially valuable for owners of commercial property that require frequent repairs and refreshes to attract clients and tenants (for example, hotels, restaurants and office buildings).
  2. For each client, perform testing on amounts paid to acquire, produce or improve tangible property to identify any costs that you had previously expensed that should now be capitalized as improvements, as well as any repair costs that were capitalized. Compute a 481(a) adjustment on the net impact on the client’s income and expenses, going back as many years as is reasonable, based on the availability of the client’s records. The Treasury and the IRS are looking for a “good faith” effort that you and your client applied these rules to the best of your ability, and they expect to see at least some adjustments.
  3. Remember that your clients must follow the new rules effective with the 2014 tax year. Prepare your clients’ Forms 3115 on each of these changes now rather than wait until the end of the year to find out the client has been improperly classifying improvements as deductible repairs.

Capturing the maximum amount of current deductions for tangible property repairs requires in-depth construction engineering expertise and understanding of the nuanced rules regarding the new definitions for UOP. By establishing a strategic partnership with a specialty provider of engineered tax solutions, CPAs will be better able to bring their clients into compliance while maximizing the tax benefits of these changes.

Find out how CSP360 can position your CPA firm to assist clients and prospects with timely and valuable guidance on the final tangible property regulations.

Tags: commercial real estate, tangible property regulations, Jennifer Birkemeier

Find Tax Savings for Clients and Comply with the Dispositions Portion of Tangible Property Regs (Part 2)

Posted by Jennifer Birkemeier on 5/12/14 9:19 AM

Delight your clients with ‘found money’ while cleaning up their accounting for retired assets.

Tangible_Property_RegsIt’s time for spring cleaning…of your clients’ fixed asset accounting. Just like you might find a $20 bill in that jacket you’re donating to Goodwill, you could also uncover tax savings by properly disposing of your clients’ retired assets in accordance with new IRS regulations.

In our first post in this series on the new tangible property regulations, we described how you could improve cash flow for your clients today and in the future by applying the new three-part improvement test

But what if your client has an expense that doesn’t pass the three-part test? For example, a hotel owner installs a new roof that is expected to materially increase the efficiency—and therefore the value—of the building. Because the roof is intended to “better” the property, it must be capitalized.

However, what about the roof that is being replaced? If it has not been fully depreciated, the owner might be able to write off the remaining value. This ability to elect a “partial disposition” is a new part of the proposed regulations. Whereas in the past each building was considered one unit of property (UOP), the proposed disposition regulations allow taxpayers to claim a tax deduction for the retirement of any structural component of a building (roof, walls, windows, floors, doors, etc.) or any component of a structural component.

First, Segregate Systems

The first step in delivering value to your clients while complying with the new disposition rules is to make sure that their building systems are properly segregated. The tangible asset regulations require separating out the structural components from the eight building systems (HVAC, gas, plumbing, electrical, escalators, elevators, fire and alarm, and security).

If the client has performed a cost segregation in the past, this step is already done. If not, these new regulations provide the perfect reason to take this step. And once those systems are segregated, you can identify opportunities to claim tax deductions for dispositions of old assets. You also are in a better position to evaluate whether a cost segregation study would provide the client with additional deductions through accelerated depreciation.

Next, Write Off Old Components

Right now, the proposed regulations allow taxpayers to write off the remaining value of any old assets that are still on their books—all the way back to 1987. This can be significant for property owners who still have old components on their books that haven’t been fully depreciated. For example, if a property owner has replaced the roof three times in the past 20 years, there is a good chance that at least two of those old roofs are still being depreciated.

Keep in mind that the IRS could disallow the depreciation on those old roofs in the future. By performing a disposition analysis now, you make sure your clients get the full value of the deductions available to them while also bringing them into compliance.

Use It or Lose It

While they are not final, the proposed disposition regulations are in effect and may be applied to tax years beginning on or after January 1, 2012. The final regulations will likely only allow a limited period of time to look back to claim deductions on assets that were retired or exchanged in previous years, so clean up your clients’ fixed asset accounts now to bring them into compliance and uncover tax-saving opportunities.

Are you looking for a way to demonstrate to your clients how a thorough review of their fixed asset accounting will deliver value beyond compliance? Download this white paper on The Final Tangible Property Regulations, customize it with your firm logo and contact information, and use it to show your clients how you can be a tax-slashing hero!

Tags: tangible property regulations, Jennifer Birkemeier

Find Tax Savings for Clients with Section 162(a):Improvements to Tangible Property (Part 1)

Posted by Jennifer Birkemeier on 5/7/14 9:11 AM

Use 3-part test to uncover potential goldmine of Section 162(a) deductions.

Final_Tangible_Property_RegulationsWhile the final tangible property regulations are complex and require a significant amount of work to bring your clients into compliance, they also hold great tax-saving potential for clients who own commercial real estate—especially office space, retail, hotels, restaurants and other types of property that require frequent upkeep.

In this series of posts, we will share actionable ideas about how you can deliver value to your clients while putting them in compliance. In our first post, we address the area of improvements.

Under the final tangible property regulations (T.D. 9636), we now have more clearly defined rules regarding whether your clients’ expenditures constitute a deductible repair under Code Section 162(a), or whether they must be capitalized under Code Section 263(a).

At the heart of the determination is whether that amount was paid to “put” a unit of property (UOP) into efficient operating condition (i.e., improvement), or whether it was made to “keep” it there (i.e., repair or maintenance). The expense must clear a series of hurdles to reach the conclusion that it is a currently deductible repair.

Three-Part Improvement Test

While the regulations don’t offer any bright-line dollar amounts to determine whether an expense is a deductible repair or a capital improvement, they do provide a series of tests to help make the determination. These tests essentially boil down to the following questions:

  1. Does the amount paid add to the value of the UOP (i.e., betterment)?
  1. Is the expense intended to adapt the UOP to a new or different use not consistent with the ordinary use of the UOP at the time it was originally placed in service (i.e., adaptation)?
  1. Does the expense substantially prolong the useful life of the property (i.e., restoration)?

Remember: If the answer to any of these questions is “yes,” then the expense must be capitalized.

The Opportunity: Deducting Repairs Past, Present and Future

Every taxpayer is required to conduct a review of their accounting for tangible property and file Form(s) 3115 to show their efforts to comply with the final rules. Why not uncover tax savings at the same time that you are bringing your clients into compliance? Armed with this new three-part test, you are in a position to review your property-owning clients’ past expenditures–potentially going all the way back to 1987.

You can also consult with those clients to plan future renovation activities that qualify as deductible repairs and maintenance rather than improvements that must be capitalized. By taking this proactive planning position, you can help your clients create a continual stream of deductions while staying in compliance with the tangible property rules.

To find tax-saving opportunities for your clients while bringing them into compliance with the final tangible property regulations, you need the support of specialists who have conducted extensive research into the areas of fixed asset accounting. Contact CSP360 and ask about how we can help you improve your clients’ current and future cash flow through a 263(a) repair and maintenance review.

Tags: tangible property regulations, Jennifer Birkemeier, Section 162(a)

How to Squeeze More Life From an Old Cost Segregation Study

Posted by Don Warrant on 4/28/14 9:36 AM

A cost segregation study is a stepping-stone to Section 263(a) compliance …and a lot more tax savings for your clients and prospects!

Cost Segregation StudiesPop quiz: Which of your current clients is in the best position to benefit from a 263(a) repair and maintenance review?

Answer: Those commercial property owners who have already benefited from a cost segregation study you delivered.

A cost segregation study does not include repairs and maintenance within its scope, so 263(a) compliance provides the perfect reason to go back to commercial property owners to find more tax savings by expensing the repair and maintenance costs that were excluded from their original study.

These clients also will see a lower cost of 263(a) compliance, because a portion of the heavy lifting (segregating the building systems) was already completed during the initial cost seg study. Because the original cost seg study did a review and analysis of eight building systems, a 263(a) specialist will be better able to find repair and maintenance costs that qualify for expensing quickly and easily.

Additional Client Tax Savings

The original cost segregation study provides the ideal road map to identify those additional tax savings.

So how do you turn past cost segregation clients into repeat customers?

  1. Mine your tax database. You know that your firm’s tax software is a gold mine of information, but have you tapped that mine to identify clients that need to be brought into 263(a) compliance? Start with the clients who have conducted cost seg studies in the past, and then search for those property owners who have subsequently performed significant repairs or renovations. If you don’t have the capability in-house, specialists at CSP360 can help.
  1. Ask and you shall receive. If you prefer a low-tech approach, send a tax bulletin on the repairs and maintenance regulations to your property owning clients (including past cost seg clients) and include a simple questionnaire designed to identify clients that would benefit from a 263(a) repair and maintenance review. Include a list of activities that now qualify for current expensing, and ask the client to indicate which activities they have undertaken in the past 10 years, along with an estimate of the costs for each activity. Let the client know that you will be following up to discuss their potential tax-saving opportunities.

If you would like to see this approach in action, click here to find out more about our DeepDive program for client mining.

  1. Host a seminar for your top commercial real estate clients. Now that you have a list of commercial property owners who would benefit from 263(a) repair and maintenance review, invite those valued clients to an educational seminar on the benefits of complying with 263(a).To this end, we have educational materials on hand for your use.

This multi-phase approach to communicating with your clients should drive home the following tantalizing point: They can increase their tax savings while achieving compliance—all at a lower cost—by leveraging a study they have already paid for.

Contact Us

CSP360 can help you take advantage of this rare opportunity to help clients maximize tax savings while achieving cost-effective compliance. Contact us to learn about how we can partner with your firm to conduct 263(a) repair and maintenance reviews for your clients.

Tags: 263(a) repair and maintenance review, 263(a) regulations, Don Warrant

A Tale of 263(a) CPAs

Posted by Jennifer Birkemeier on 4/21/14 9:18 AM

How overlooking tax savings from new repair regs left one CPA in tears.

baby_cryingSee if you recognize your CPA firm in this tale of opportunity and loss.

A regional firm partner had been pursuing a real estate mogul aggressively for more than 12 years. The partner wined and dined this commercial real estate owner, searching for any angle to earn his work. But the real estate owner was satisfied with his existing CPA…until one day, when the owner approached his current CPA with a question.

“What should I be doing about these new tangible property regulations?” the owner asked.

“Oh, don’t worry about that,” his CPA told him. “Your capitalization policy is in line with the new regs, so you won’t have any additional tax exposure.”

Which all sounded well and good. But still… the real estate owner had a nagging feeling that there was something more to be done to improve his tax position. After all, he had been acquiring and renovating hotels and apartments for the better part of a decade.

And so he turned to the accounting firm partner who had been tirelessly courting him. “What do you know about this 263(a) regulation?” he asked.

With a twinkle in his eye (for he knew that this was his opportunity to win the real estate owner’s business once and for all), the partner asked for the owner’s prior year tax returns. When the owner handed over the schedules, the partner saw a gold mine of tax savings—more than $6 million, in fact!

“But how can that be?” the bewildered owner asked. “I thought we were already aggressively expensing repairs and maintenance.”

“Your current CPA has betrayed you,” the partner replied. “He disregarded your instructions and took an especially conservative approach; in fact, you have been essentially capitalizing nearly all of your renovation expenses.”

The regional firm partner went on to explain that, not only does the renovation work qualify for current expensing, but he could perform cost segregation and abandonment studies to identify even more opportunities to accelerate deductions into the current year.

Overflowing with gratitude, the commercial real estate owner signed an engagement letter with the regional CPA firm on the spot, and he vowed to bring the firm in on discussions of future acquisitions and renovations so they could continue this tale of tax minimization and increased cash flow. As for the owner’s prior CPA, he’s still scratching his head and weeping over the loss of a valued client.

So which CPA are you? The one who used 263(a) as a tool to win over a coveted prospect…or the one who lost the client because he kept his head in the sand about the tax-saving potential of the tangible property regulations?

A strategic partner like CSP360 can help you win more new clients (and delight existing clients) with a professional 263(a) repair and maintenance review. Through our exclusive CPA Partnership Program, CSP360 can position your firm for growth through engineered tax solutions such as 263(a) by lowering your clients’ and prospects’ tax bills. Contact us or call (800) 591.0148 to schedule a consultation.

Tags: 263(a) repair and maintenance review, 263(a) regulations, tangible property regulations, Jennifer Birkemeier

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