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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

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

tangible property regs 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

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