If you’re onboarding a new commercial real estate client this summer, be sure to check tangible assets on the tax return
Summer isn’t just about quality time at the pool or the golf course. It’s also about quality networking time focused on growing your practice. Lots of calendar-year taxpayers are coming off of their annual experience with their tax preparers, and some of them are bound to be testing the waters to see if a new accountant might be a better fit. If you’re fortunate enough to be adding clients that own tangible property, especially commercial real estate clients, there are 2 key signs that they may have missed a significant tax-saving opportunity under the new 263(a) regs.
1-Does the Return Include a Form 3115?
If your new or potential commercial real estate client has already filed a 2014 tax return, that return should include a Form 3115, Application for Change in Accounting Method. If it doesn’t, the good news is that most clients can still file that form up to the extended due date of the original return. And the even better news is that you will likely be able to help them get a significant refund as a result.
2-If the Return Includes a Form 3115, Is There a 481(a) Adjustment?
If you onboard a new client or talk to a potential client who did file a return with a change in accounting method, you need to review that adjustment. The new regs under section 263(a) require affected businesses to change their accounting methods (Form 3115) and to adjust the basis of many existing assets to reflect that change (Form 3115—Part IV, Section 481(a) Adjustment). If you review a return for a new client that includes the change in method but not the adjustment, it’s likely that there is a mistake involved that needs to be corrected before the extended deadline for the return.
Even if the Form 3115 has been filed and a 481(a) adjustment has been claimed, it’s important to review the previous accountant’s work in calculating the adjustment. The one-time catch up adjustment for businesses that change accounting methods under the new rules has generated more than its share of confusion and errors this year.
If you’re looking at new clients that have tangible assets, you might want to consider getting a second opinion on the 481(a) adjustment from CSP360. Our professionals focus on tax issues affecting commercial real estate clients. We have helped many accounting firms that wanted an extra set of eyes on this issue at this critical time. If you have any questions or concerns about how the new rules may have affected your commercial real estate clients or prospects, a consultation with CSP360 could help you to better serve your client.