Real Estate Journal — Tax Issues & Accounting — Financial Digest — December 9 - 22, 2016 — 13A
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T ax I ssues & A ccounting By Terri S. Johnson, CRE, Capstan Tax Strategies Broad definition of QIP expands availability of Bonus Depreciation
T
he PATH (Protecting Americans Against Tax Hikes) Act of 2015 ex-
than that, this definition of QIP is really quite broad. As of January 1st, QIP replaces the other acronyms (QLI - Quali- fied Leasehold Improvements, QRP – Qualified Restaurant Property, QRIP – Qualified Retail Improvement Property) as the only category eligible for bonus depreciation. There is some interplay between the categories, and if property classified as QIP also meets the definition of any of the other 3 acronyms, then QIP becomes 15-year property and bonus eligible. QIP boasts a few other no- table advantages. Unlike QLI, the improvement doesn’t need to be made subject to a lease. In even bigger news, QIP eliminates QLI’s “three-year rule” – the building in ques- tion doesn’t have to be at least three years old. As long as the building predates the im- provement, QIP is an option, opening the door to a great deal of bonus depreciation op- portunity. Let’s take a look at QIP in ac- tion. A business owner builds a new 40,000 SF property, and his business occupies 30% of the space. The building was placed-in-service on June 1,
2016, and the total spend was $6M. Six months go by, and the owner adds a tenant who will occupy 10,000 s/f of the building. The tenant requires an extensive fit-out of his new space, costing $500,000. Since the building was less than three years old at the time of the improvement, this doesn’t qualify as QLI. This improvement to the tenant space would be classified as QIP, since the improvement was made after the building was placed-in-service, and doesn’t involve any excluded improvements (building en- largement, etc.) Now it’s true that QIP is 39-year property, whereas QLI is 15-year SL. However, remember that QIP has one major advantage over QLI – it’s eligible for bonus depreciation. By classifying this improvement as QIP, that $500,000 is 50% bonus eligible. Another more involved ex- ample – imagine a five-year old retail shopping center with an $8M basis. A Cost Segrega- tion Study was performed in 2011, when the property was placed-in-service (and since updated to include the Unit of Property Analysis). In 2016 a small tenant, occupying 10%
tended bonus depreciation for a record five years. T h i s w a s indeed very b i g n e w s , and it’s not surp r i s i ng that it made
Terri Johnson
a very big splash in the world of commercial real estate. The PATH Act also introduced a new category of building im- provements known as “Quali- fied Improvement Property,” and though it hasn’t gotten too much attention yet, people are beginning to realize that QIP is the gateway to bonus depre- ciation. You read it here first -- QIP is the next VIP. QIP is defined as any im- provement to an interior por- tion of a building which is nonresidential real property, as long as the improvement was placed-in-service after the date the building was first placed-in-service. Improve- ments to the internal structur- al framework are excluded, as are building enlargements and elevators/escalators, but other WOODBURY , NY — The Long Island Chapter of Construction Financial Management Association (CFMA) has recognized Alan Nahmias , co-founder of Con- tractors For Kids (CFK) and president of Stalco Con- struction , as Construction Executive of the Year. The award ceremony, attended by more than 200 construction, engineering, architecture, and finance professionals, took place during CFMA’s 9th Annual Dinner Gala. The event, which benefitted CFK, raised more than $60,000 for the organization that financially supports families of children with serious ill- nesses. “I am greatly honored by this recognition from the Construction Financial Man- agement Association of Long Island. I am also enormously grateful to the hundreds of financial and accounting pro- fessionals, who have chosen to dedicate their careers to
of the building, does a refresh. Meanwhile, the parking lot gets a routine surface seal coating. Simultaneously, a major tenant occupying 50% of the center leaves, and a new replacement completely guts and renovates the space. There’s a lot of potential here – let’s put it in chart form. Clearly, the availability of QIP further expands the utility of cost segregation and for structured stress testing, this comprehensive software helps organizations maximize performance and profitability. Marketing Floored provides innovative and versatile marketing tools for all types of commercial real estate properties. They produce excellent materials for marketing, usable on any device or operating system, including 3Dmodels and video fly-throughs. These can even be converted for use with the Oculus Rift headset for ultra- access to the property. The platform features a number of tools for space planning that will give potential tenants all the information they need. Contract management DocuSign is a leader in digi- tal transaction management. It is used by millions world- wide for secure and efficient document sharing and elec- tronic signature. Major compa- nies like Yahoo, Expedia, and Comcast use DocuSign to close deals more quickly, with fewer fees and less friction. continued from page 12A
broadens the scope of proper- ties eligible for bonus deprecia- tion. The ability to choose QIP over QLI or QRIP may have major advantages for your bot- tom line. To learn more about how QIP may benefit you, feel free to visit capstantax.com or call 215.885.7510. Terri S. Johnson, CRE, is a co-founder andmanaging partner at Capstan Tax Strategies. n Legal SiteCompli navigates the rocky terrain of site compli- ance, regulations and ordi- nances. It provides site-spe- cific data and round-the-clock monitoring to keep owners and managers abreast of changes and possible violations before they become problems. The bottom line is that real estate companies today have a wide range of quality products with which to assemble their tech stacks. The cloud will drive technology for years to come, and this new genera- tion of software is intended to address the requirements of an increasingly collaborative and mobile – anytime, any- one, anyplace – commercial real estate world. As a result, industry professionals have an exciting opportunity to manage their operations with higher efficiency and take advantage of new avenues for leveraging data to improve the bottom line. Michael Mullin is presi- dent of Integrated Business Systems in Totowa, NJ. n
Stalco Construction president named Construction Executive of the Year
Commercial real estate and the modern technology stack. . .
Shown from left: Andrew Meyerson, CFMA Event Chair and CFO of Axis Construction; Alan Nahmias, Co-founder of CFK and President of Stalco Construction; Steven DeLuca, CFK President and 1st VPof Suffolk County National Bank; and Stephen Ebinger, President of CFMA Long Island Chapter and Partner of CohnReznick LLP. (Photo by Maven Jade)
generated well in excess of $500,000 to benefit CFK. We are proud to recognize Alan for both his contributions to the community and leading one of the most prominent construction firms in the Tri- state area,” said Stephen Ebinger , president of CFMA Long Island Chapter and partner in the Jericho, NY, of- fice of CohnReznick LLP . n
the building industry and helped it become the multi- billion dollar powerhouse of the regional economy,” said Nahmias. “Each year, we at the Long Island Chapter of the CFMA direct our philanthropic ef- forts toward aiding Contrac- tors For Kids. To date, our An- nual Construction Executive of the Year Dinner Galas have
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