Real Estate Journal — Financial Digest — Creative Financing — June 8 - 21, 2018 — 11A
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M id A tlantic
C reative F inancing
By Terri S. Johnson, CRE, Capstan Tax Strategies All in Good Time: Implementation of new tax law depends on project timing
F
rom the moment the new Tax Cuts and Jobs Act (TCJA) passed,
established PATH Act rules would apply. As such, the acquisition would not be eli- gible for Bonus depreciation. If there was a written bind- ing contract signed on or after 9/28/17, the property would have been acquired firmly during TCJA-time, and therefore TCJA Bonus rules would apply, giving you 100% Bonus. Furthermore, in this post-TCJA era, the requirement that the original use of the asset must com- mence with the taxpayer no longer applies, meaning that
“new-to-you” assets would also be Bonus-eligible. One important point to keep in mind is that under the aforementioned Reg. 1.168(k)-1(b)(4)(ii), a contract is only binding if it is enforce- able under state law. You may wish clarify relevant state law with your attorney. NEW CONSTRUCTION – BONUS RATE DRIVEN BY DATE “SUBSTAN- TIAL” CONSTRUCTION BEGUN If “substantial” construc- tion began before 9/28/17,
pre-established “phase- down” rules would apply – i.e. the old 50%/40%/30% Bonus rates would be in play. If construction began on or after 9/28/17, the property would be considered a TCJA- era project and associated 100% Bonus rules would be in play. We’ve been hearing a lot about this issue, and we’ve helped a number of clients understand how specific time frames may affect their tax savings. As with most tax issues, the facts and circum-
stances of each project will determine the most advanta- geous outcome. We encour- age clients to consult with their CPA and/or attorney to determine the critical dates involved in their projects. Terri S. Johnson, CRE is a co-founder and partner at CapstanTax Strategies. Terri works closely with commercial real estate owners and accounting firms to provide practical, creative, and customized engineering-based tax solutions.
the r e was a flurry of q u e s t i o n s about how t h e TCJA would affect owne r s o f real estate. Signed into law late De-
Terri S. Johnson
cember, this legislation rep- resents the first major tax reform in over three decades, and stands to impact virtu- ally every US taxpayer. Bonus depreciation for 2017 was fixed at 50% under the PATH Act, and people are naturally excited about the TCJA boosting it to 100% for new and used assets with a depreciable MACRS life of 20 years or less. This provi- sion of the TCJAwas retroac- tive, and may apply to filings for TY 2017. Sounds good. However, you need to dig a little deeper to understand the practical application of the dates. The TCJA states the fol- lowing: If a written binding con- tract for the acquisition of property is in effect prior to September 28, 2017, the property is not considered acquired after the date the contract is entered into (Act Sec. 13201(h)(1) of the 2017 Tax Cuts Act). And that’s all it says. This is the total sum guidance from the IRS right now, and the final interpretation of these “written binding contract rules” is still uncer- tain. Until the IRS releases further guidance on this mat- ter, it seems that the most reasonable current inter- pretation should be based on guidance the IRS issued the last time they did a mid-year split of Bonus rates (Reg. 1.168(k)-1(b)(4) and Revenue Procedure 2011-26). This is subject to change at any moment, but for now , this is the guidance we’ve been following: ACQUISITIONS OF REAL ESTATE – BONUS RATE DETERMINED BY DATE OF WRITTEN BINDING CONTRACT If there was a written bind- ing contract signed before 9/28/17, the acquisition tech- nically took place before the TCJA era, and the pre-
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