10A — July 23 - August 19, 2021 — Financial Digest — Tax Issues/Accounting — M id A tlantic Real Estate Journal
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T ax I ssues /A ccounting
By Bruce A. Johnson, MBA, CRE, Capstan Tax Strategies Multifamily Matters: The #1 Property Type Continues to Hold Strong
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Cost Segregation report can be used to produce and support disposition tables. ▪ In December of 2019, Proj - ect ABC (above) underwent a renovation with an associated depreciable basis of $3M. The same Capstan engineer re- turned to the property to docu- ment the discarded assets. He was also able to move 32% of the new assets into 5-year. Between both strategies the first-year tax savings on the renovation was $325,000. • Energy-efficient tax in - centives are in play for multi- family properties. The EPAct 179D deduction is a great op- tion for multifamily facilities that are 4 or more stories high, and the deduction is psf -- up to $1.80/s/f -- so the bigger the better. The 45L tax credit is extremely popular right now, and condos, townhouses, and apartment buildings that are a maximum of three sto- ries high are all solid candi- dates. The federal tax credit is $2,000 per unit, so the savings can really multiply. ▪ Example: A large multi - family property was placed- in-service on the east coast in 2020. The total square footage was 85,000, and the property was eligible for the maximum EPAct 179D deduction of $1.80/SF. The total deduction benefit was $153,000, result - ing in an actual tax savings of $61,200, on top of tax savings from accelerated depreciation and other strategies. ▪ Example: A 90-unit gar - den-style property was newly constructed. Each unit met the eligibility criteria for a 45L tax credit. At $2,000 per unit, the total tax credit was $180,000. The key to maximizing tax savings on your multifam- ily property is a quality cost segregation study. The study will allow you to leverage a combination of strategies old and new, increasing cash flow, reducing tax liability, and teeing you up for better days ahead. Bruce A. Johnson, MBA, CRE, is a co-founder and partner at Capstan Tax Strategies. Bruce works closely with commercial real estate owners and ac- counting firms to provide practical, creative, and customized engineering- based tax solutions. MAREJ
he multifamily mar- ket remains consis- tently steady and
in September of 2018. The total depreciable basis was $37,445,200. Capstan engi- neers were able to move 18.7% of assets into 5-year personal property, and another 7% of assets into 15-year land improvements, resulting in a first-year tax savings of $3,142,872. • The CARES Act from March 2020 temporarily re- moved two unfavorable loss limitations that many real es- tate investors would encoun- ter: the 80% net operating loss limitation and the $500K
overall loss limitation. • The Tangible Property Regulations (TPRs) are still very much in play, augment- ing the utility of the newer leg- islation. The TPRs guide the taxpayer in making expense and capitalization decisions, to ensure that all possible assets are capitalized. • Partial Asset Dispositions are very useful in a renovation scenario, as the remaining de- preciable basis of the discard- ed assets may be immediately written off in the current year. Data generated by a Capstan
have brought depreciation deductions to an all-time high, and this continues to drive interest in multifamily, par- ticularly at a time when cash flow is all-important. Here are just some of the factors making multifamily properties of interest: • The Tax Cuts and Jobs Act (TCJA) brought 100% bonus depreciation through the end of 2022 and made acquired assets eligible for said bonus. ▪ Property ABC, a garden apartment complex, was ac- quired and placed-in-service
robust, even through the cha l l enge s of the last year. Along with provid- ing the op- portunity to earn rental income, mul-
Bruce Johnson
tifamily projects offer several tax benefits to the thoughtful investor. Recent provisions in the CARES Act and TCJA
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