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Have Your Commercial Property Clients Considered Every Tax Saving Opportunity?

Posted by Don Warrant on 8/4/15 9:17 AM

Which non-engineering based tax incentives present the greatest opportunity for commercial property owning clients? Why?

tax_incentivesSome artists will tell you that the hardest thing about creating a painting is knowing when it’s finished. This may be one of the few ways that tax practice resembles the creation of fine art. There are so many opportunities for savings, it’s hard to know when your commercial property clients have finished considering every one. Here’s a quick overview of some credits and incentives available to commercial property owners that don’t always get considered when planning to manage taxes.
  1. Property tax incentives
  2. Sales tax exemptions
  3. Employment incentives
  4. Location based incentives
  5. Historic tax credits
  6. Energy efficiency tax deduction
  7. Alternative energy improvements
Property Tax Incentives. State and local governments typically offer a property tax abatement for new construction or renovation of existing buildings. Commercial property owners should consider whether such abatements apply based on the type and location of the property.
 
In addition, a state may provide a real property tax credit based on the use of the commercial building in a qualifying activity. Commercial building owners should always consider how these incentives could impact their operating costs.
 
Sales Tax Exemptions. State and local governments may provide a sales tax exemption for new construction or rehabilitation of existing buildings. Commercial building owners generally must secure such exemptions before entering into a construction contract. Such exemptions can significantly reduce the overall cost of construction.
 
Employment Incentives. Federal, state and local governments typically provide incentives for hiring targeted individuals. For example, the federal Work Opportunity Tax Credit program provides a tax credit for hiring targeted individuals including honorably discharged veterans of any branch of the U.S. armed services. State and local governments may provide similar incentives for hiring targeted individuals.
 
Location Based Incentives. The Federal Empowerment Zones (“EZ”) program provides a tax credit for hiring individuals who live and work within designated areas. Commercial building owners should always check whether their building’s address is located within a designated area and if so, they may claim EZ credits retroactively for all prior years open under the federal statute of limitations.
 
In addition, to encourage cleanup and redevelopment of brownfield sites, states may provide incentives such as liability relief and tax credits. For example, New York State provides refundable tax credits for clean-up, new construction, real property taxes, and remediation insurance.
 
Historic Tax Credits. The IRS provides historic tax credits for the rehabilitation of historic properties. In many cases, these tax credits make the rehabilitation of a historic property feasible. In addition, State governments may provide a similar tax credit. For example, New York State will match the federal credit and it is refundable.
 
Energy Efficiency Tax Deduction. Commercial building owners who install energy efficient property as part of the commercial building’s interior lighting systems, heating, cooling, ventilation, and hot water systems, or building envelope may qualify for a federal tax deduction, even if the project was completed in a prior tax year (back to 2006). Certification must be obtained to verify that the property installed satisfies the energy efficiency requirements. Generally, any new lighting installation will qualify for the tax deduction. Therefore, the cost of any construction that involves lighting should be calculated taking into account the potential tax deduction that can accompany the installation.
 
Alternative Energy. Commercial building owners should consider incorporating alternative energy improvements during construction to reduce future operating costs. These types of improvements are typically subsidized by federal and state tax credits and grants. In addition, the federal recovery period for alternative energy property is 5 years.
 
Consider Tax Credits and Incentives Before Signing Contracts. The time to consider tax credits and incentives is before a construction contracts is signed. Commercial building owners will likely forfeit construction related incentives once they have committed to the project by signing a construction contract.
 
CSP360 Deep Dive Program Some Experience Required. If your firm has clients that might benefit from these incentives and an interest in pursuing them, you should evaluate the talents of your current team. In many cases, CPA firms can best add services like these to their portfolio of offerings by partnering with firms that are designed to support them with privately branded solutions.
 
If you think you might have some commercial real estate clients who have yet to explore the availability of all the credits and incentives that may apply to them, or if you want to reach out to potential clients and suggest a review, please contact us here or at (800) 591.0148.

Tags: commercial real estate, Don Warrant, Property tax incentives, Sales tax exemptions, Historic tax credits, Employment incentives, Location based incentives, Energy efficiency tax deduction, Alternative energy improvements

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