SECTION 45L
CAPITAL RESERVE STUDIES
DISPOSITION OF ASSETS
EPACT / 179 TAX DEDUCTION
The Cost Segregation Specialist offers a variety of services targeted to reduce tax liabilities. The TCSS tax credit and tax incentive discovery programs will help you get a jump start on increasing your company's cash flow. It is important to note that while all of the TCSS service programs provide a piece to the financial puzzle, they do not replace the essential role of the CPA for tax planning and tax preparation. TCSS works in conjunction with a variety of CPA clients as well as individual business owners.
If you are a CPA and would like to enhance your firm's services and spend more time to growing your commercial real estate portfolio contact us about partnering with TCSS.
The Energy Policy Act of 2005 (EPAct 2005) allows taxpayers to accelerate depreciation on the cost of qualified energy efficient commercial building property placed in service after December 31, 2005. Eligible improvements must reduce total energy costs by a specific amount compared to a Reference building under ASHRAE Standard 90.2-2001. A first year tax deduction of up to $1.80 per square foot is available for the cost of energy efficient property including the design and installation. This deduction is based on total square footage of the building but cannot exceed the original cost of the energy efficient improvements.
The Energy Efficient Home Credit, also known as Section 45L, is a Federal tax credit that may benefit developers of residential, energy efficient dwellings. Free standing homes such as apartment buildings, condominiums, townhouses and production homes completed after August 8, 2005 that are under three stories may be eligible for a tax credit of $ 2,000 per dwelling unit. Qualifying dwellings need to provide a level of heating and cooling energy consumption that is significantly less than the required 2004 energy standards. The great news is that many developers have already built and met the necessary criteria for this credit and there is also an opportunity to claim any missed tax credits retroactively.
This study is a comprehensive evaluation of the physical components of the common areas of a property coupled with an analysis of the reserve funds. Based on a thorough on-site field inspection, this study generates a detailed listing of the anticipated replacements and repairs to all of the common area elements and creates a recommended annual reserve funding model to cover estimated capital expenditures for the next 30 years. While some states require a capital reserve study to be completed annually, it is a good idea to have one done at least every two to three years to ensure that the governing board's fiduciary responsibilities are being met adequately.
A Cost Segregation allows building components to depreciate at an accelerated rate instead of the traditional 27.5/39 Year Class Life for Real Property. By reclassifying these components to assets with shorter recovery periods, Clients can achieve significant tax savings and improved cash flow. This tax deferral strategy can be used on new construction, renovations, expansions, existing buildings, purchases, and leasehold improvements. Employing this tax strategy can typically shift 20% to 40% of a building's cost to personal property. The result is a quicker write off and a lower tax liability.
Disposition of Assets occurs when an asset is taken out of service and no salvage value is received for that asset. Additionally, removing the asset's cost and accumulated depreciation from the books, the asset's net book value, if it has any, is written off as a loss. This type of tax strategy, also known as a Retirement of Assets or Abandonment Study, must be done in conjunction with a Cost Segregation Study and must be implemented prior to any demolition or renovation of the building. Another caveat to this strategy is that the personal property within the structure was not purchased with the intent to be demolished; this is due to the fact that if the intent was to destroy the property then there was no intrinsic value that could be assigned to the property.
New IRS Repair Regulations have been established regarding which property items can be expensed and which should be capitalized. These regulations are applicable to all industries that either acquire, produce, replace or improve tangible property in one way or another. Commonly referred to as Repair and Maintenance or a 263a deduction, the change in the way real property is treated can mean potential cost savings. The determining factor for the expensing versus capitalizing an asset is now found in the reasoning for the repair costs rather than the amount spent to actually make the repair. Another change with this regulation is the definition of what constitutes a Unit of Property.
TAX STRATEGY SOLUTIONS FOR YOUR COMPANY
SERVICE Areas
The Cost Segregation Specialist