www.marej.com
10C — September 27 - October 10, 2019 — Fall Preview — M id A tlantic
Real Estate Journal
C ommercial M ortgage B anking
By Terri S. Johnson, CRE, Capstan Write it Off: Partial Asset Disposition
T
he Tax Cuts and Jobs Act (TCJA) is a game changer, plain and sim-
lations permit an election to recognize Partial Asset Dis- position (PAD). This election has tremendous implications for tax savings, and is yet another potential benefit as- sociated with the performance of a high-quality cost segrega- tion study. Before the TPRs took effect, there were no written instruc- tions regarding writing off the remaining depreciable basis of preexisting assets. Let’s use the classic roof example. In the past, if you needed to replace your old roof you would capitalize the cost of the new roof, and then depre- ciate it over the usual class life (39-year for commercial property.) Before the TPRs, most taxpayers would also continue depreciating the old roof which had been replaced. It wasn’t that unusual to see two or more roofs on the books simultaneously.
Fortunately, the TPRs allow for the immediate write off of the remaining depreciable basis of the old roof, recogniz- ing a loss in that amount. This results in lower total income, lower taxable income, and decreased tax burden imme- diately. This may also benefit the taxpayer if he sells the property in future. In a sale, accumulated depreciation often gets recaptured, mean- ing that some of the proceeds from the sale get taxed at higher rates. Partial asset dis- position removes accumulated depreciation from the fixed asset schedule. By reducing amounts to be recaptured, the disposition election in es- sence establishes a tax rate arbitrage, allowing taxpayers to use normal capital gains treatment under Sec. 1250. An additional bonus of the PAD election comes in the form of deductible removal
costs. It costs money to re- move old shingles and bad wood. The TPRs allow for the deduction of these costs on top of the deduction of the remaining depreciable basis of the old roof. (Note that removal costs related to demolition are covered under Sec. 280B and are addressed differently.) In order to take advan- tage of the PAD election, the adjusted cost basis of the replaced asset must be de- termined. There are several ways to do this, but the IRS itself states that that the engineering-based approach used in a cost segregation study is “the most methodical and accurate approach… and generally provides the most accurate cost allocations.” Cost segregation generates the detailed, accurate data required to perform partial asset dispositions using meth-
odology that is both accepted and respected. With their unique focus on breaking out costs, cost segregation studies are the ideal way to generate the data required to justify such elec- tions. In fact, cost segregation studies are more important than ever – the TPRs and TCJA have expanded their use far beyond accelerated depreciation, and a properly performed cost segregation study is crucial for taxpay- ers who want to maximize benefit on their commercial real estate. Terri S. Johnson, CRE, is a co-founder and partner at Capstan Tax Strategies. Terri works closely with commercial real estate owners and accounting firms to provide practical, creative, and customized engineering-based tax so- lutions.
ple. Howev- er, it’s im- portant to r ememb e r that other tax strate- gies are still a l i v e a n d we l l , a n d t h e s e o p -
Terri S. Johnson
portunities should not be overlooked in the commotion currently surrounding the TCJA. The Tangible Property Regulations (TPRs) remain very much in play, and in fact augment the utility of the TCJA. The TPRs offer a major bo- nus that is often overlooked — even if it is determined that an expenditure must be capitalized, the TPRs still provide a great opportunity for write offs. The final regu-
L icensed S ite R emediation P rofessionals
By Caryn Barnes, LSRP, Langan What Does New Jersey’s SRRA 2.0 Mean for You?
I
n August 2019, New Jersey Gov. Phil Mur- phy s igned amend-
programworks, licensed site remediation professionals (LSRPs) are getting sites closed, and remedies are protective. Here is an overview. For responsible parties, public notification require- ments have changed. Public notification now is required prior to the remedial inves- tigation, rather than the remedial action phase. This means the public must be informed at the beginning of an investigation rather than waiting until onsite work begins. This was understood to be a mistake in the original SRRA. The public notifica- tion language was amended to say that the municipal, county and local agencies may receive a copy of the remedial action work plan and all data required by the NJDEP. Responding to public in- quiries was reinforced be-
cause of the often significant time delays between major report submittals. The new requirements note that in- formation or documents that are “responsive to the inqui- ry” or a “written summary status report” are required. This responsibility can still be delegated to the LSRP. The new law also solidified current NJDEP practices for direct oversight. Now, direct oversight “runs with the site regardless of who owns the property and regardless of whether there is a transfer of ownership,” according to the law. The NJDEP’s policy of ticketing for violations was reinforced, allowing mu- nicipal courts jurisdiction to impose civil penalties. The definition of an im- mediate environmental con- cern for vapor intrusion was modified to include confirmed contamination that has migrated into “a structure currently used or
able to be used for human occupancy.” And remedia- tion funding sources were changed to allow responsible parties to use surety bonds. The new law encourages the use of green and sustain- able practices, provided that they do not alter the require- ments of the remediation to be protective of human health and the environ- ment. It also broadens the definition of remediation to include preliminary assess- ment, site investigation, remedial investigation, and remedial action. This ap- peared to dovetail with the addition of language in the LSRP Code of Conduct pro- hibiting LSRPs from over- seeing remediation unless an LSRP has been retained. The position of LSRPs was created in the original SRRA law in 2009, but the new law sets additional professional standards for LSRPs, bring- ing them on par with other
licensed professions. For example, an affidavit of merit is now required to bring malpractice actions against an LSRP as a “li- censed person,” consistent with other licensed profes- sionals in the state. The af- fidavit of merit is intended to require a plaintiff to dem- onstrate at the outset that there is a colorable basis for its claim. In this way, the af- fidavit of merit requirement avoids frivolous lawsuits. The law also requires LSRPs to confirm knowl- edge of an immediate en- vironmental concern with a responsible party both verbally and in writing. In- formation about a discharge must be made by the LSRP to the responsible party and the NJDEP. Caryn Barnes, LSRP, is principal and environ- mental practice leader at Langan and LSRPA president.
ments to the state’s Site R eme d i a - tion Reform Act (SRRA), common l y known as SRRA 2.0. It was the first change
Caryn Barnes
in 10 years to New Jersey’s program, which has led to more and faster clean ups of contaminated sites through- out the state. Most of the changes are tweaks. A host of interested groups spent a year re- viewing potential changes. Legislative leaders told the groups to find consensus items and “do no harm” to the highly successful pro- gram. The changes solidified the existing site remediation process, reinforcing that the
Made with FlippingBook - professional solution for displaying marketing and sales documents online