M id A tlantic Real Estate Journal — Owners, Developers & Managers — January 2023 — 3C
O wners , D evelopers & M anagers
By Christopher Suto, CPA, Withum Tax planning considerations for property owners in light of bonus depreciation phase out
T he real estate industry has gotten very com- fortable with the luxu-
Taxpayers have calendar year 2023 to take advantage of 80% bonus depreciation on qualifying property before the allowance drops again in 2024. Qualifying property is loosely defined as property with a depreciable life of 20 years or less. In general, machinery and equipment bought new or used (new to the taxpayer) qualifies. Important for real estate and other industries, thanks to the Coronavirus Aid, Relief, and Economic Security Act update, Qualified Improve - ment Property (QIP) is 15-year property and eligible for 80%
bonus depreciation. QIP con- sists of building improvements to an interior portion of a nonresidential building placed in service after the date the building was placed in service. Many tenant improvements fit into this category. QIP excludes elevators, structural modifications, or any enlarg - ing construction work. It is important to note that bonus depreciation is not available on QIP for taxpayers in real property trades or businesses that have made the election out of the Sec. 163j interest expense limitation.
Cost segregation, another relevant tax savings opportu- nity for real estate assets and very important when consider- ing bonus depreciation, takes buildings with 27.5- or 39-year depreciable lives and allocates a significant portion of the cost into shorter-lived assets — QIP, furniture, equipment, etc. These are all items eligible for bonus depreciation and can result in tax savings and increased cash flow. An advantage of planning early is avoiding delays caused by recent production trends. Whether it is construction
materials or business vehicles, items can take months to get. If a placed-in-service date is delayed until the following calendar year, property own- ers miss out on an accelerated deduction. This is a brief overview of bonus depreciation, just scratching the surface of rules and tools to use and take ad- vantage of current tax rules. This is a complex area with tax implications so please reach out to your real estate tax professional for guidance. Christopher Suto, CPA is a tax manager at Withum. MAREJ
ry of having 100 percent bonus depre- ciation on certain asset classes since it was re-en- acted by the Tax Cuts and Jobs Act on September 27, 2017.
Housing experts project another year of modest growth for U.S. Condominiums And Homeowners Associations FALLS CHURCH, VA — While experts predict a major slowdown for the U.S. housing market in 2023, the number of new condominium communi- ties and homeowners associa- tions is expected to increase by 5,000 this year, according to projections by the Foundation for Community Association Research, an affiliate organi - zation of Community Associa- tions Institute (CAI). Community associations, also known as homeowners associations, condominiums, and housing cooperatives, are home to 74.2 million Ameri- cans and represent 29% of the U.S. housing stock, ac- cording to the Foundation's 2021-2022 U.S. National and State Statistical Review for Community Association Data. A The Foundation estimates the number of U.S. community associations will grow from 358,000 to as many as 363,000. “While we’re optimistic about the continued growth of com- munity associations, we also are closely monitoring a decline in U.S. home prices and an in- crease in mortgage rates that is cooling the housing market,” said Dawn Bauman, CAE , executive director of the Foun- dation and CAI's senior vice president of government and public affairs. MAREJ This luxury is set to phase out starting January 1, 2023, until it is fully eliminated in 2027. In 2023, the allowance dropped to 80%, and it will drop by 20% each succeeding tax year until it is gone for good in 2027.
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