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