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Complying With The Tangible Property Rules

Posted by Don Warrant on 10/21/14 9:17 AM

Don’t let them be fooled into thinking a repairs and maintenance review equals compliance.

There’s a reason that every CPE session you’ve attended in recent months has addressed the tangible property regulations. Compliance with this complex set of rules is mandatory for the 2014 tax year. If your client is not in compliance, and therefore understates taxable income, you as the tax preparer are on the hook for stiff penalties—not to mention the potential loss of a client.

But bringing your client or a prospect into compliance entails a significant amount of your time, not to mention specialized expertise regarding method changes. So how do you convey the importance of complying with these voluminous rules so that those clients are willing—even happy—to pay you for the extensive time that will be required of you?

Following are four things that clients and prospects need to know about 263(a) compliance:

  • 263(a)_compliance“There’s gold in them hills.” While compliance with the tangible property regulations can be an arduous climb, a thorough review by tax and engineering experts can pay for itself by mining opportunities to take current deductions for repairs and dispositions of tangible property.
  • A repairs and maintenance review is not enough. Your clients should know that any report that merely identifies deductions, with no “givebacks” in the form of additional capitalized costs, is unlikely to address the client’s full compliance responsibilities. The tangible property regulations consist of five sections, each of which entails required method changes, as well as optional elections. Identifying previously capitalized costs that are now eligible for current deductions comprises only one-half of one method change (out of a total of 27).
  • That capitalization policy is a good start, but it’s still not enough. Some clients are under the impression that they complied with the new rules when they put in place a capitalization policy last December. While necessary to adopt the de minimis election, the capitalization policy does nothing to address the many other components of this substantial body of regulations.
  • Engineering knowledge is not enough. True compliance with the tangible property regulations requires a combination of deep knowledge of this nuanced area of the tax code. While firms that specialize in cost segregation may sing an alluring tune of tax savings, they may not have what it takes to make sure the clients’ 263(a) compliance requirements are met.

Of course, simply telling your client or a prospect what doesn’t constitute compliance is not going to give you the opportunity to help them with these complexities, and in the process, earn additional revenue. That’s why you need to present clients and prospects with a carefully thought out plan regarding the applicable method changes and the potential impact on their 2014 tax liability. Armed with that comprehensive plan—which most likely will include some tax-minimization opportunities—you will demonstrate that you are looking out for his best interests.

Backed by the expertise of Top 100 accounting firm Freed Maxick, CSP360 partners with CPA firms across the country to bring their clients into compliance with the tangible property regulations and identify opportunities for tax minimization. Contact us to learn how we can help you deliver the highest level of value to your clients.

Tags: New Tangible Asset Regs, 263(a) regulations, Don Warrant, tax saving opportunities

How to Quote a 263(a) Project to a Client or Prospect

Posted by Don Warrant on 10/14/14 9:09 AM

To bring clients tax minimization opportunities and get them into compliance, build in enough time to fully test assets and expenses.

263(a)By now, you know that every one of your clients and prospects must comply with the tangible property regulations for the 2014 tax year. But uncertainty about what exactly that compliance project will entail may have kept you from quoting these 263(a) projects.

Ideally, every CPA should start bringing clients and prospects into compliance as soon after the October 15 tax deadline as possible. Every day you delay starting the process will make the 2015 tax-time crunch more onerous.

Some overwhelmed CPAs might be tempted to think that, because a boutique cost segregation provider has performed a review of fixed assets to identify deductions, the compliance problem has already been taken care of. This is a dangerous assumption. These boutique providers are adept at combing through the fixed asset schedule to pick out costs that were previously capitalized and now are eligible to be expensed. But when it comes to identifying costs that were expensed and now must be capitalized, those providers lack the tax expertise (and motivation) to perform that analysis.

Make no mistake; a fixed asset review is not enough to bring your clients or prospects into compliance with the tangible property regulations. As the signer of your client’s tax return, you need assurance that the client is fully in compliance with the tangible property regulations.

Unless your client’s engineered tax solutions provider also comes to the table with deep knowledge of tax law and method changes, you will need to build into your quote many hours of your own time to examine and analyze the impact of these complex regulations.

What You Need to Do to Bring Clients Into Compliance

When it comes to your more complex clients and prospects who own multiple commercial properties, the hours required for a 263(a) compliance project can really add up—in some cases to a hundred hours or more. The project essentially consists of three phases:

Phase 1—Information Gathering

During the initial information-gathering phase, you perform a preliminary assessment of the extent of the regulations’ impact for each of the five primary sections of the regulations (materials and supplies, de minimis amounts, amounts paid to acquire or produce tangible property, improvements to tangible property, and dispositions).

This analysis requires access to both the fixed asset schedule and the general ledger. What you’re looking for is any large dollar amount that is likely to jump out at an IRS examiner. For example, you’ll want to flag for further analysis any asset on the books with a high net tax basis, such as buildings and leasehold improvements.

Once you have a list of these high-dollar assets and expenses, ask the client or prospect for more information about exactly what type of work was performed. Based on their answers, you should have enough information to identify the method changes that your client will be required to perform, as well as those elections that will save the client money.

This analysis—which can take anywhere from a couple of hours to a couple dozen hours—is necessary before you can accurately quote a fee for the second and third phases of the project. Without this information, you’re really just guessing which of the regulations’ 27 method changes and 7 elections applies.

Phase 2—Analysis

Based on the information gathered in Phase 1, perform tests on those fixed assets and expenses to generate the depreciation amounts and deductions that you will use in your client’s 2014 tax return. Also during this phase, you will prepare Forms 3115 to report method changes. Documentation is critical during this phase to support your position in the event of an IRS examination.

Phase 3—Incorporate method changes

During the final phase of the 263(a) project you assist the client or prospect with updating internal accounting procedures in accordance with these method changes and their own capitalization policies.

A Comprehensive Compliance and Tax Minimization Solution

Overview-of-Annual-ElectionsAnnual_ElectionsBringing clients into compliance with the tangible property regulations is no simple endeavor. An accounting methods specialist will be best positioned to determine which of the 27 method changes is applicable. CPAs who trust that their clients’ boutique providers of engineered tax solutions have the compliance angle covered may be in for a rude surprise when the IRS starts reviewing those tax returns in 2015 and beyond.

Overview-of-Automatic-Method-ChangesBacked by Top 100 firm Freed Maxick, CSP360 provides CPA firms access to deep expertise in tax and accounting methods combined with practical engineering and construction cost knowledge. Contact us to find out how we can help bring your clients fully into compliance with the tangible property rules while also digging deep for tax minimization opportunities.

Tags: 263(a) repair and maintenance review, 263(a) regulations, tax saving opportunities

Why Your Commercial Real Estate Clients and Prospects Should Jump for Joy Over the Final Disposition Regulations

Posted by Don Warrant on 10/7/14 9:27 AM

A clean sweep of old leasehold improvements can make for a shiny tax outlook.

old_leasehold_improvementsDoes your client base (or prospects) include owners of commercial rental property? If so, those landlords should be leaping with joy. If they’re not, it’s probably because you didn’t explain how much money they can save by cleaning up their old depreciable assets accounts.

As your commercial property clients rotate tenants in and out of a space, they usually make improvements for each new tenant. Generally, tenant improvements are depreciated over a 39 year or 15 year period. The tax law allows for the recognition of a loss on the abandonment of leasehold improvements when they are irrevocably disposed of. However, your client may be continuing to depreciate leasehold improvements abandoned in prior years. So that means it’s likely that some depreciable basis for those old assets still remains on the client’s books. But the final disposition regulations allow taxpayers to recognize a loss on the prior year abandonments and removal costs by making a method change for the current tax year. And that means you can delight those clients or prospects with current tax deductions.

Use the Depreciation Schedule to Uncover Tax Savings

To identify opportunities to abandon leasehold improvements, take a look at the client’s depreciation schedule for capitalized “leasehold” and “tenant” improvements.

Once you have a list of these improvements, identify the names of the tenants for whom they were made. (Ideally, your client or prospect has noted the name of the tenant next to the asset on the depreciation schedule.) Compare that list to the current rent roll. Are there certain names that don’t match up? That most likely means that those improvements were for prior tenants. Bring this list to your client or prospect and ask what happened to those improvements. If subsequent improvements have been made to the space, then you have an opportunity to take a current tax deduction for the remaining tax basis in the abandoned leasehold improvement cost or portions thereof.

Remember that your ability to defend any method changes to expense those assets will rest on the quality of the client’s documentation about those improvements, as well as the method used to segregate those costs. While the final disposition regulations allow taxpayers to use “reasonable methods” such as the Producer Price Index, an engineering-based cost segregation will generally result in a more accurate (and generally, higher) number and is more likely to stand up to IRS scrutiny.

Looking to demonstrate to your commercial property owners that you deliver value far beyond compliance? Contact CSP360 to find out how we can position you as a tax-slashing hero through our private-label tax solutions.

Tags: tangible property regulations, Don Warrant, tax saving opportunities

What to Tell Your Commercial Real Estate Clients About Dispositions of Tangible Property

Posted by Don Warrant on 10/2/14 9:17 AM

Use it or lose it: Claim current deductions by cleaning up old assets now.

new_tangible_property_disposition_rulesWith the August 14 release of the final disposition regulations and the accompanying implementing procedure changes, commercial real estate owners and their CPAs received some welcome news.

Property owners can continue to make a late partial disposition method change when filing 2014 tax returns. Unfortunately, after 2014, taxpayers can no longer make late partial disposition method changes. However, taxpayers can continue to claim a loss on the disposition of a portion of an asset when the disposition occurred during the current tax year.

Act Now or Miss this Opportunity Forever

The ability to recognize a loss on the disposition of a structural component that was disposed of in prior years expires for tax years beginning on or after January 1, 2015. Therefore, if your client or prospect replaced structural components of buildings in prior years, they must act quickly to take advantage of this one-time opportunity to generate additional tax deductions for the 2014 tax year.

Partial Dispositions Hold Tax-Minimizing Potential

Generally, the final regs regarding dispositions of tangible property were largely unchanged from the 2013 proposed regulations. Most notably for your clients and prospects that own commercial real estate, this means that they can count on the ability to recognize a loss on the disposition of a structural component of a building when an improvement is capitalized during the current tax year.

For owners of commercial property, this ability to recognize a loss on a “partial disposition” may hold even more tax-saving potential than a repair and maintenance review. That’s because the final tangible property regulations narrowed the definition of unit of property (UOP) for buildings, which may result in the capitalization of more improvements. Historically, property owners couldn’t recognize a loss on the disposition of a structural component of a building. As a result, clients have been depreciating multiple building components.

Now that the IRS and Treasury have said that the building and its structural components (roof, walls, windows, floors, doors, etc.) comprise one UOP and each of the eight building systems comprise separate UOPs, they have made it much harder to justify treating a cost as a deductible expense—but for the first time provide an election to recognize a loss on the disposition of a structural component (e.g., a roof). And in the event that an IRS examination requires the capitalization of a repair, taxpayers may elect to recognize a loss on the disposition of the related structural component on the current year tax return.

Don’t Overlook Removal Costs

There is yet another tax-saving opportunity for your clients and prospects that could be completely missed by CPAs who lack construction and engineering expertise. Disposing of an asset typically involves some removal costs—for example, paying workers to pull up old roof tiles and putting fuel in a dump truck to haul them away. These removal costs can (and should) be deducted along with the remaining basis in the old roof, and they require a separate method change.

If you don’t have access to the construction and engineering expertise required to determine the depreciable basis of disposed assets, then the final disposition rules allow the taxpayer to use a “reasonable method” to determine the asset’s basis. But these methods, including the Producer Price Index, are limited in application and generally do not take into account removal costs.

The Value of Engineering Expertise

What is the original cost basis of the portion of property that was replaced? What was the cost to remove those assets? These are questions that require both detailed documentation and experience with construction and engineering approaches. The tax and cost segregation specialists of CSP360 partner with CPA firms across the country to reduce clients’ tax bills while bringing them into compliance. Find out how with a Deep Dive into our process.

Tags: commercial real estate, tangible property regulations, Don Warrant, tax saving opportunities

Plan for a Rainy Day: Will That Cost Segregation Study Stand Up to IRS Scrutiny?

Posted by Don Warrant on 9/23/14 9:22 AM

Integration of engineering and tax expertise form a solid umbrella that will protect you and your client.

cost_segA cost segregation study can identify accelerated depreciation deductions that total hundreds of thousands or even millions of dollars—in many cases wiping out the client’s current year tax liability. But that study is only the beginning of the story.

As the IRS is looking to limit the flow of tax deductions, examiners are getting more aggressive about flagging any imbalance between gross income and tax liability. If your client’s cost segregation study fails to hold water, then your client will be handing all of those tax savings (and more) back over to the IRS. And because you relied on that third-party study when preparing your client’s tax return, you could face potential penalties.

Plan for that rainy day by making sure your umbrella (the cost segregation study) doesn’t have any holes. Before your firm prepares a tax return using the results of a third-party cost segregation study, ask the following questions:

  • Does the study follow the Cost Segregation Audit Technique Guide? The IRS has essentially published its entire playbook, which spells out the elements of a quality cost segregation study, including preferred cost segregation methodologies, documentation and presentation. CPAs and their clients who rely on reports that follow the IRS’ guidelines can enjoy greater confidence that those reports will stand up to IRS scrutiny.
  • What is the cost seg provider’s basis for “substantial authority”? The IRS expects tax preparers to have substantial authority that the information presented in the tax return is accurate. When it comes to meeting that standard on a cost segregation study, construction experience is not enough. In-depth knowledge of the tax code and thorough research on court cases and interpretations are crucial to make sure that study will hold up to IRS examination. For example, an engineer might classify a certain item as 5-year property, whereas case law shows that the tax court takes a different view.
  • Has the client signed a purchase contract? As a result of Peco Foods, Inc. v. Commissioner, cost segregation providers now could be hamstrung by language included in the purchase contract. In that case, the Tax Court found that the purchase price allocation is binding and cannot be altered by a cost segregation study. Does your client’s boutique cost segregation provider understand the implications of this momentous case?

Don’t find yourself exposed to the elements without a solid umbrella. Achieve peace of mind by thoroughly vetting your cost segregation provider. Make sure your client’s cost segregation provider has the right mix of engineering and tax expertise, as well as a demonstrated track record of standing by clients throughout IRS examinations.

Contact us to find out how we partner with CPA firms throughout the U.S. to help them delight their clients through thorough and defensible cost segregation studies.

Tags: cost segregation, Don Warrant

How A Firm Delighted a Client With $8 Million in Accelerated Depreciation

Posted by Don Warrant on 9/16/14 9:32 AM

Strategic partnership positions firm to earn client loyalty (and $120,000 in fees).

cost_segregation-2As a forward-looking CPA who serves growing businesses and owners of commercial property, you have significant opportunities to delight your clients through reduced tax bills and increased cash flow. Partnering with the right provider of cost segregation and other engineering-based solutions will help ensure that you can deliver the greatest possible amount of tax savings related to tangible property.

Consider the following example:

After a period of more than 20 years of flat or declining revenues, a 100-year-old manufacturer of motor parts was starting to see increasing sales and margins. In fact, business was looking so good that the company was planning to expand into a new $30 million facility.

The spark behind this renaissance was an injection of new leadership. The son of the former owner (and grandson of the founder) had recently taken over and undertaken initiatives designed to improve the business’ margins and position it for growth. As one of these initiatives, the third-generation owner sought out a new CPA firm with the skills and resources to support and enhance this growth. When he asked around for such a progressive CPA firm, he kept hearing the name of one firm—we’ll call them Progressive CPAs.

Tax-Slashing Heroes

Although they are a small firm, Progressive CPAs possesses the tax expertise and mindset that the manufacturer needed to improve margins and profitability. So when the company landed a major account and needed to move into a 250,000-square-foot facility, the owner looked to Progressive for ideas on making the cost of the expansion more manageable.

The company’s newly profitable status was about to trigger a hefty tax bill, which would swallow up the cash the company would need build the new plant. And after 20 years of almost zero retained earnings, and a new leader at the helm, creditors were not exactly lining up at the door with generous terms.

But Progressive CPAs had a secret weapon in their back pockets in the form of a strategic partnership with CSP360. Through this partnership, Progressive has total access to CSP360’s 15-plus years of experience helping commercial property owners accelerate depreciation deductions and identify other tax-minimization opportunities based on building, acquiring and improving real estate and other tangible property.

Tapping into this extensive experience and research, Progressive was able to identify more than $8 million in accelerated depreciation deductions for the manufacturer, plus additional current-year deductions based on a 263(a) repair and maintenance review. Those tax savings freed up cash that the company needed for those capital expenditures, which put a big smile on everyone’s faces.

And what made Progressive CPAs smile? True, they earned a handsome engagement fee of $120,000 for the project. But even better, the CPA firm proved to this new client that it could live up to its name by delivering progressive tax solutions.

The Secret Weapon: A True Partnership

The secret weapon that enabled the CPA firm to earn this manufacturer’s loyalty and a hefty engagement fee was a strategic partner who is truly integrated with the firm and operating as an extension of the firm—not simply a vendor looking to sell a project.

When the expansion project came up, Progressive CPAs didn’t have to call around to multiple cost seg vendors, seek quotes, and verify credentials. The firm had already fully vetted CSP360’s tax and engineering expertise, backed by more than 15 years of research on tax code and case law. And so they could be confident that the manufacturing client was in good hands, and they even trusted CSP360 to represent the firm at client meetings. That sort of trust does not come from a vendor relationship—only from a true strategic partnership.

CSP360 can help you achieve the same types of results with your commercial property owners. Let us take a Deep Dive through your client list to uncover opportunities to slash your clients’ tax bills and strengthen your client relationships.

Tags: cost segregation, Don Warrant

3 Things to Tell Clients About Tangible Property Regulations

Posted by Don Warrant on 9/9/14 9:37 AM

Lead with tax savings on past repairs and maintenance, and close with ways to minimize taxes in the future.

Section_162(a)As a CPA in touch with your commercial real estate client base, you know that the final tangible property regulations represent significant opportunities to uncover tax savings for those clients while bringing them into compliance with IRC Section 263(a) and Section 162(a).

We CPAs tend to get so excited about these opportunities that we sometimes get a little “geeky” about the regs. But the fact is that clients really don’t care about all the minutiae of tax law. All they care about is how they can save money on their tax bills, increase their cash flow, and do it without Uncle Sam slapping them with penalties and interest.

With those goals in mind, here are the three most important things you should tell your clients about the tangible property regulations:

  1. Tax savings could far exceed the costs of compliance. Telling a story of tax-minimization is sure to make your clients’ eyes light up. The Treasury expects every taxpayer with fixed assets to conduct a review of their accounting for tangible property and file at least one Form 3115 with their 2014 return. But rather than lead with a dreary tale of compliance, talk up the tax savings. Review the client’s fixed asset schedules now to identify those repairs they were previously capitalizing. And while you’re at it, take a look at opportunities to accelerate depreciation deductions.
  1. 263(a) and cost segregation go together like peanut butter and chocolate. For commercial property owners, the first step in complying with the tangible property regulations is to segregate out the eight building systems from the building and its structural components. Clients that have already had a cost segregation study performed are that much closer to 263(a) compliance and identifying opportunities to deduct repairs that were previously capitalized. For clients that have not benefited from a cost segregation study in the past, now might be an ideal time to do so. The engineering analysis required for a cost seg is the same as that required under the 263(a) system break-out, so why not take that extra step of identifying 1245 property that qualifies for accelerated depreciation?
  1. These rules provide a roadmap to future tax savings. Now that we have final rules defining unit of property and tests for repairs vs. improvements, you can help your clients plan their future renovation activities so that they qualify as deductible repairs.

Remember: These are just the highlights. The final tangible property regulations contain a plethora of opportunities to deliver tax-saving value to clients while bringing them into compliance. Taking advantage of these opportunities requires engineering expertise. If you are interested in partnering with CSP360 to help improve your clients’ current and future cash flow, contact us to request a Deep Dive into our process.

Tags: 263(a) regulations, Don Warrant, Section 162(a), tax savings from repairs vs capitalization

3 Ways Your CPA Firm’s Clients Can Make Costly Mistakes Under the Tangible Property Regulations

Posted by Don Warrant on 9/2/14 10:29 AM

You can help them avoid these mistakes through proactive tax planning.

Tangible_Property_RegulationsIn previous blog posts, we have regaled you with the many ways that your commercial real estate clients can benefit from the final rules regarding tangible property accounting. Well, there are also some ways that those same clients can shoot themselves in the foot.

Here are the biggest mistakes that we see clients making with regard to the tangible property regulations:

1. Clients think they can comply with only a portion of the rules.

The U.S. Department of Treasury has been very clear: Taxpayers cannot pick and choose which portions of the tangible property regulations with which they will comply. Some clients simply want to change their fixed asset accounting to comply with the rules going forward, without bothering to address past expenses that were improperly classified. Doing so puts your client at risk of having adopted an impermissible method change for the property. Taxpayers are required to consider both capitalized repairs that may be deducted as well as expensed costs that must be capitalized for the building.

2. They ignore low-hanging fruit.

The final tangible property regulations include several taxpayer-friendly safe harbors. The de minimis safe harbor election, routine maintenance safe harbor and small taxpayer safe harbor all shield taxpayers from IRS scrutiny. Of course, not every client will qualify for these safe harbors, but it is your job to see if they do qualify for these simple ways to increase tax savings while staying in compliance.

3. They don’t want to clean up their depreciation schedules.

For the first time—and most likely a limited time—proposed regulations allow taxpayers to take current deductions for previously disposed assets that are not yet fully depreciated. While making a “late partial disposition election” is purely optional, those who hesitate may lose the opportunity. The final regulations are expected to allow taxpayers to make late partial disposition elections for the 2014 tax year. Currently, the election is only available for the 2013 tax year.

As your clients’ trusted tax advisor, it is your responsibility to keep them from making these costly mistakes. We recommend that you conduct a mid-year review of your clients’ accounting methods for tangible property to determine the method changes and elections necessary to comply with the final regulations. It is likely that the tax-minimization benefits will outweigh the costs of compliance.

If you need support from a strategic partner with a deep knowledge of the tangible property regulations and the engineering expertise required to uncover the maximum tax savings, contact us or request a Deep Dive into our process.

Tags: commercial real estate, tangible property regulations, Don Warrant, tax saving opportunities

5 Questions to Uncover a 263(a) Opportunity

Posted by Don Warrant on 8/26/14 9:21 AM

Clients with $500,000 or more of capitalized improvements, old assets on the books are prime prospects for tax savings.

263(a)As your clients’ trusted advisor, you are constantly searching for opportunities to lower your clients’ tax bills while keeping them in compliance with IRS Regulations.

A fixed asset review is an ideal way to accomplish all of the above. We discussed the benefits of a mid-year fixed asset review in a previous post. But how do you identify those clients that represent the greatest opportunities to realize tax savings while complying with 263(a)? Here are five questions you should be asking.

  1. Does the client own properties that require frequent or expensive repairs? Hotels, restaurants, commercial office buildings and retail establishments all must keep the property in good condition to attract clients and customers. Manufacturing and distribution facilities require expensive repairs to keep a unit of property in efficient operating condition. These are exactly the kinds of clients and prospects that have costs that are likely to qualify as deductible repairs.
  2. Does the client have more than $500,000 of capitalized improvements on the books? A commercial property owner can look back all the way to 1987 for capitalized costs so it’s not hard to reach that number. By proactively reviewing previously capitalized costs, you can demonstrate your value by identifying costs that now qualify as current tax deductions. And by performing that review now, you can present your client with the option of taking those deductions on the 2013 tax return or saving them to offset 2014 taxable income.
  3. Is the client depreciating old windows or roofs? The proposed regulations allow taxpayers to claim a tax deduction for the retirement of structural components of buildings—or any portion of a structural component. The clock is ticking on your ability to make this “late partial disposition election” for assets disposed of in prior years. The election is currently available only for the 2013 tax year. While the final regulations (which are yet to be released) are expected to extend the election to 2014, cover your bases by cleaning up property owners’ depreciation records now.
  4. Could your client benefit from the de minimis safe harbor? This safe harbor allows taxpayers to write off any amounts paid to acquire, produce or improve tangible property that are less than a certain threshold. For taxpayers that have an Applicable Financial Statement (AFS) and follow written accounting procedures, that threshold is $5,000 per item or invoice; for taxpayers without an AFS, the threshold is $500 per item or invoice. Because the final regs removed the ceiling on this election, your clients and prospects now have a significantly greater opportunity to shield these tax deductions from IRS scrutiny.
  5. Has the client purchased, constructed or renovated a building with a cost basis of at least $1 million? Compliance with the tangible property regulations is mandatory, but if you can find opportunities to accelerate depreciation deductions at the same time utilizing a cost segregation study—that’s just gravy!

If you’re looking for ways to increase your clients’ cash flow while putting them into compliance with 263(a), CSP360 can help. Sign up to take a Deep Dive and find out how.

Tags: commercial real estate, 263(a) regulations, Don Warrant, tax saving opportunities

Act NOW on 179D Opportunities for Commercial Real Estate Owners

Posted by Don Warrant on 8/19/14 9:16 AM

Tax deductions for energy efficient upgrades plus dispositions of abandoned assets can add up to big tax savings.

tax_savingSo what ever happened to the EXPIRE bill—the one that would have extended the Section 179D Energy Efficient Commercial Building Tax Deduction through the end of 2015 and boosted the whole-building deduction to $3 per square foot? Sadly, it is mired in political quicksand, and the chances of any extender bill making its way through Congress before the November elections are about as good as a snowball’s chance in…well, you know.

But that doesn’t mean you should stop talking to your property-owning clients about 179D. In fact, now is an ideal time for your commercial property owners to capture deductions for past energy efficiency improvements made between 2006 and 2013. If your clients own hotels, restaurants, apartment buildings, manufacturing or distribution facilities, or other properties that require upgrades to improve energy efficiency, don’t forget about this valuable tax deduction.

263(a) Reviews Can Turn Up 179D Opportunities

As your firm is conducting its review of 263(a) repair vs. improvement costs, take some time to evaluate any lights, HVAC systems and exterior improvements that were performed between 2006 and 2013 and meet the criteria of the Energy Policy Act of 2005. An energy study conducted on those efficiency improvements could qualify the taxpayer for up to $1.80 per square foot.

What About Those Old Fixtures?

There is another potential tax-saving opportunity that could end up being even more valuable than the 179D deduction. An abandonment study conducted on the old lights or HVAC system that the client pulled out could more than double the size of the tax deduction that is available to offset either 2013 or 2014 taxable income.

For example, consider a hotel owner that spent $100,000 on a new lighting system for the 50,000 square foot building. Whereas the 179D deduction would be $30,000 (50,000 sq ft x $0.60), an abandonment study on the old lighting system could realize an additional deduction of about $60,000. That total deduction of $90,000 is a sure way to put a smile on that client’s face.

Of course, sometimes the best bang for your client’s buck will come as a result of expensing the cost as a repair, rather than going through the extra expense and effort of bringing in a qualified engineer to certify the property. Making the determination of how to treat building related expenditures requires deep expertise in these engineered tax solutions. CSP360 has the experience and knowledge you need to delight your commercial real estate clients with tax-minimization opportunities.

Contact us to find out how we can partner with you to spot opportunities in your client base to take advantage of 179D deductions or other tax-saving strategies.

Tags: commercial real estate, Section 179D, 263(a) repair and maintenance review, Don Warrant

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