8B — December 27 - January 16, 2020 — Industry Leaders — Owners, Developers & Managers — M id A tlantic
Real Estate Journal
www.marej.com
Industry Leaders
ear-end tax planning for 2019 is in full swing. Thoughtful planning By Michael West, CPA, Withum Key write off reminders for real estate owners – 2019 Year-End Planning Y materials) • Furniture • Cabinets building, and elevators/escala- tors).
100% bonus depreciation for new and used property remains in effect for 2019. The percent- age phases down from 2023 to 2026. Bonus depreciation is available for tangible property with a recovery period of 20 years or less. Examples of property eli- gible for bonus depreciation are countless and varied but the following are some common items real estate owners can purchase that qualify: • Appliances • Carpeting (and in many cases depending on circum- stances, various other flooring
improvement property is not eligible for bonus depreciation. This potential law change needs to be monitored closely by owners of commercial real estate because if the law is amended it will provide sig- nificant additional depreciation opportunities for the 2019 tax year on any remodeling and interior improvements com- pleted. Bonus Depreciation – Vehicles In addition to tangible prop- erty, bonus depreciation on new and used vehicles purchased in 2019 should be considered. Vehicles above 6,000 pounds For vehicles with gross ve- hicle weight rating (GVRW) above 6,000 pounds, 100% bo- nus depreciation can be taken for the full purchase price of the vehicle. Passenger autos must be 6,000 pounds unloaded and trucks and vans must be 6,000 pounds loaded to qualify. Vehicles 6,000 pounds or less For passenger autos with unloaded gross vehicle weight rating (GVRW) of 6,000 pounds or less, maximum depreciation (including bonus) is limited to $18,100 in 2019. Section 179 deduction Section 179 permits the de- duction of the entire cost of an asset acquired and placed in service. In many ways this is similar to bonus depreciation but the Section 179 deduction has more restrictions. The busi- ness must have positive taxable income, non-grantor trusts and estates are ineligible to claim Section 179 deductions, and property must be used in an active trade or business, so certain rental properties may not be eligible depending on facts and circumstances. For 2019, the maximum Section 179 deduction is $1,020,000. If total asset ac- quisitions are greater than $2,550,000, the deduction be- gins to phase out dollar for dollar and is fully phased out once the cost of Section 179 property placed in services reaches $3,570,000. If the circumstances are right, the Section 179 deduction can be a great tool and has the added benefit that the follow- ing large dollar items, which are ineligible for bonus depre- ciation, qualify for Section 179 expensing for commercial real estate property: • Qualified improvement continued on page 14B
Under the Tax Cuts and Jobs Act (TCJA) passed in December of 2017, Congress intended to assign a 15 year recovery pe- riod to qualified improvement property which would have also made it eligible for 100% bonus depreciation described above. However, writers of the TCJA failed to include qualified im- provement property in the list of property with a 15-year life and therefore a technical cor- rection is needed to fix the law to match the intent of Congress. As of this writing, qualified
should be em- ployed in or- der to maxi- mize tax sav- ings, monitor cash flows, a n d a v o i d tax penalties. The following are some im-
• Special electrical, plumb- ing and HVAC hookups for equipment Bonus Depreciation – Quali- fied Improvement Property Qualified improvement prop- erty is any improvement to an interior portion of a building that is nonresidential rental property if the improvement is placed in service after the date the building was first placed in service (excluding internal structural framework of the building, enlargement of the
Michael West
portant tax code tools that real estate owners should consider for their 2019 asset additions. Bonus Depreciation – General
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