Real Estate Journal the provision is reinstated retroactively, and will continue to use ASHRAE 90.1-2001 standards as a benchmark for determining the eligibility of a building’s energy-efficient improvements. In tax year 2016 however, buildings will be compared to ASHRAE standards 90.1-2007. The 2007 standards are very similar to those established in 2001, with the exception of more stringent interior lighting requirements – to meet the 2007 standards, taxpayers must show an average of 25% greater improvement in e ergy-efficiency. The influence of the PATH Act is going to be felt in all areas of the commercial real estate world. The table below demonstrate the impact of the PATH Act in two very different scenarios. www.marejournal.com T axes
8C — April 29 - May 12, 2016 — Spring Preview — M id A tlantic
By Terri S. Johnson, CRE, Capstan Tax Strategies The PATH Act impacts commercial construction projects
T
he Protecting Ameri- cans from Tax Hikes Act of 2015 (PATH Act)
Scenario 1: Multi-Family Garden Style – Newly Constructed
conta ins a numbe r o f subsections that create tremendous opportunity for commer- cial real es- tate owners. Since 2001,
Expected Date of Service: June 2017
Budget: $12,000,000
Service: Cost Segregation with 50% Bonus on assets moved from 27.5-year life to 5 and 15-year MACRS lives
Terri Johnson
tax extender packages have come and gone, extending incentives for a short period of time without guarantee of renewal. This has resulted in a constant state of uncertainty, interfering with a taxpayer’s planning and decision making processes. The PATH Act, however, makes permanent the 15-year straight-line cost-recovery status of Qualified Leasehold Improvements (QLI), Quali- fied Restaurant Buildings and Improvements, and Quali- fied Retail Improvements (QRI). Furthermore, the Act extends bonus depreciation for five years and the 179D tax credit for two. The PATH Act has contributed to a sense of confidence in the taxpayer, allowing him to freely plan new construction projects, ex- pansions, and energy-efficient improvements, fully aware of the incentives to which he is entitled. The significance of the re- cord five-year extension of Bonus Depreciation cannot be overstated. Immediate expens- ing of capital expenditures is such a powerful tool, and the PATH Act permits Bonus Depreciation at 50% for Tax Years 2015, 2016, and 2017 before being reduced to 40% in 2018 and 30% in 2019. Bo- nus Depreciation has played a tremendous role in new construction projects over the years and being able to rely on these deductions will have a huge impact on overall tax planning strategy. EPAct 179D deductions have been extended for two years under the Act. For tax year 2015, the provision is re- instated retroactively, and will continue to use ASHRAE 90.1- 2001 standards as a bench- mark for determining the eli- gibility of a building’s energy- efficient improvements. In tax year 2016 however, buildings will be compared to ASHRAE standards 90.1-2007. The 2007 standards are very similar to those established in 2001,
After Cost Segregation Study
Year One Tax Savings (combined tax rate of 40%)
$660,360
Year Five Tax Savings
$820,515
Scenario 2: Retail Shopping Center – Renovated, New Tenant Added, Energy-Efficient Systems Upgraded
Expected Date of Service: December 2016
Project Square Feet: 150,000
Budget: $3,000,000 renovation (including energy-efficient systems) and $2,000,000 in tenant improvements for the new tenant’s space
After Cost Segregation Study
Year One Tax Savings
$522,384
Year Five Tax Savings
$480,847
179D Deduction for Energy Efficiency (note: actual results depend on
Max. Deduction
Lighting
HVAC
Envelope
$0.60/sf
$0.60/sf
$0.60/sf
$1.80/sf
modeling results of EPAct 179D Study)
180,000 sf
$108,000
$108,000
$108,000
$324,000
with the exception of more stringent interior lighting requirements – to meet the 2007 standards, taxpayers must show an average of 25% greater improvement in energy-efficiency. The influence of the PATH The PATH Act is just one of several new pieces of legislation that may create opportunities for the commercial property o ner. All tax incentives since 2001 h ve b en com iled and organiz d into Capstan’s Depreciation Accelerator, a streamlined document that has become an essential tool for real estate professionals nationwide. To receive a complimentary copy, please email tjohns n@capstantax.com. Terri S. Johnson, CRE, is a co-founder and managing partner at Capstan Tax Strategies. Act is going to be felt in all areas of the commercial real estate world. The table below demonstrate the impact of the PATHAct in two very different scenarios. The PATH Act is just one of several new pieces of legisla- tion that may create opportu- nities for the commercial prop- erty owner. All tax incentives since 2001 have been compiled and organized into Capstan’s Depreciation Accelerator, a streamlined document that has become an essential tool for real estate professionals nationwide. To receive a com- plimentary copy, please email tjohnson@capstantax.com. Terri S. Johnson, CRE, is a co-founder andmanaging partner at Capstan Tax Strategies. n
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