12A — February 8 - 21, 2019 — M id A tlantic

Real Estate Journal


Professional Services

By Robert Rahner, CFA, ASA, CCSP, Cost Recovery Solutions, LLC Tax Cuts and Jobs Act winners and losers The good, the great and the ugly


commercial real estate inves- tor, and what you should be aware of before making your next real estate purchase, is de- tailed below. We also rate the tax changes between 2017 and 2018 as Good, Great or Ugly. Bonus Depreciation Depreciation is beneficial in maximizing a property owner’s tax savings and in- creasing their cash flow. To allow businesses to recover their property costs more quickly and stimulate the economy, Congress introduced an incentive called bonus depreciation in 2002. This allows owners to deduct an

additional percentage of the cost of an eligible property (or property improvement) in the first year the property is placed in service, before their standard depreciation method is applied. However, the IRS has strict definitions of what “personal property” (such as carpeting or wallcovering) or “land improvements” (such as sidewalks or site lighting) can qualify for this bonus. Specific qualifying assets can be iden- tified through an engineering- based cost segregation study. 2017 – Good for some In 2017, owners were eli- gible for 50% bonus deprecia- tion. The catch – the incentive only applied to new construc- tion projects, leaving those who bought existing proper- ties out in the cold. 2018 – Great for more The new tax act gives own- ers two new opportunities to increase the return on their investment and lower their tax burden. First, it increases the bonus depreciation allowed from 50% to 100%, allowing owners to fully expense the costs of a qualifying project in the first year rather than having to depreciate them over many. Second, property acquisitions now qualify. This means great news for many more property owners in 2018. The table above illustrates how the new tax law will benefit a property owner who buys a $5M office building, compared to prior years when bonus depreciation didn’t exist for acquired property. Both illustrations assume a cost segregation study was performed to maximize the overall depreciation. As shown, those acquiring existing properties now en- joy a huge depreciation (tax savings) increase in the year of purchase due to the bo- nus. This dramatic first year change will materially impact how investors view their real estate purchases. QualifiedRestaurant Property A building or building im- provement is defined as “quali- fied restaurant property” if more than 50% of the building’s square footage is devoted to the consumption of prepared meals. 2017 – Great Restaurants enjoyed a 15-year depreciation schedule instead of the typical 39-year schedule required for “real” property. continued on page 18A

s the Tax Cuts and Jobs Act brings the most sweeping chang-

Additional 2018 Bonus Depreciation Benefits on Acquired Property

es in the tax code in over 3 0 y e a r s , the 2018 tax season is go- ing to be a roller coast- er ride for many. Tax profession-

2017 No Bonus $112,000 207,200 168,300 144,100 141,600

2018 100% Bonus

Depreciation Change


1 2 3 4 5

$640,000 $528,000 87,200 -120,000

87,200 87,200 87,200

-81,100 -56,900 -54,400

Robert Rahner

als are scrambling to learn all of the implications for both individuals and businesses as the season gets into full swing. How this affects you, the

5-Year Total Depreciation




Your trusted cost segregation partner COST RECOVERY SOLUTIONS LLC CRS

• Cost Segregation • Energy Tax Services • Abandonment Studies • Tangible Asset Appraisals • Fixed Asset Reviews Helping commercial property owners increase their tax savings and return on investment Headquartered in Central NJ and serving clients nationwide, our engineering services are targeted to maximize your tax deductions and put more money in your pocket. Call us to find out how you can use the 2018 Tax Act to your advantage!

106 Apple Street, Suite 105 Tinton Falls, NJ 07724 732.548.3855 info@crscostseg.com


Made with FlippingBook - Online Brochure Maker