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