Mid Atlantic Real Estate Journal — The Road to Recovery — November 22 - December 5, 2013 — 13A T ax I ssues
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By Bruce A. Johnson, Bedford Cost Segregation, LLC Permanent repair versus capital regulations
T
his past September, the IRS issued its long awaited permanent
of these tools is critical to ensure proper application of them as well as claiming the
depreciable cost basis of in- terior lighting systems that were replaced during a full
or roughly a $150,000 tax savings. This deduction rep- resented almost 10% of the projects capital cost, which greatly enhanced the clients return on investment. In addition, the client was able to clear up potential ghost assets on their tax books, which is one of the objectives of these new regulations. The benefits of these regu- lations pair quite well with other depreciation derived federal tax incentives such as cost segregation and EPAct 179D initiatives. The combined effects can be sub-
stantial, and perhaps make a marginal renovation project exceed the required financial performance requirements. In closing, these regula- tions can provide a substan- tial benefits to tax payers going forward. In preparing for your 2013 tax filings, be sure to cover this topic with your tax professionals and consultants to start the process of implementing a strategy that is right for you and your organization. Bruce A. Johnson is a partner with Bedford Cost Segregation, LLC. n
repair ver- sus capital regulations. These regu- lations will affect most b u s i n e s s o w n e r s , particularly those with commercial
The benefits of these regulations pair quite well with other depreciation derived federal tax incentives such as cost segregation and EPAct 179D initiatives. The combined effects can be substantial, and perhaps make a marginal renovation project exceed the required financial performance requirements.
Bruce A. Johnson
real estate, creating new ar- eas of compliance as well as opportunities to take advan- tage of potential benefits. The regulations officially take effect on January 1, 2014, so it will be important for this to be a tax plan- ning topic of discussion with business owners and their CPA’s. The compliance aspect of these rules may require existing expensing policies to be altered to meet the new outlined processes, and perhaps the need to make elections for things such as for partial disposition or one of the levels of de mini- mus, which creates a process which allows a tax payer to expense all items under the regulations specified level; $5,000 or $500. While these regulations have added a level of com- plexity to tax payers business operation’s, they do provide potentially significant op- portunity to reduce tax lia- bilities. The best way to take advantage of these tools is to plan ahead of any invest- ments that are foreseen, be it the construction of a new facility, purchase of a new property or improvement to an existing one. An example of how tax pay- ers can leverage these rules could be the writing-off of assets currently capitalized that are being replaced as part of a renovation proj- ect. Another would be the preparation of asset descrip- tions to comply with the regulations new concept of unit of property. The unit of property is the amount you compare the current expense to in determining whether to expense new costs or capital- ize the new and dispose the replaced/retired asset. These are just a few of the many strategies that can be employed to take advantage of these rules. Not to be over- stated, planning for the use
full benefit provided. Recently, one of Bedford’s clients was able to justify writing-off the remaining
building energy retrofit proj- ect. The result of this effort was the generation of an ad- ditional $450,000 deduction
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