The Big Questions: Ensuring Your Clients Receive Maximum Deductions This Tax Season

The Big QuestionsSuddenly it’s February. We’re knee deep in tax season and so busy that January flew right by. In all the hustle-bustle of the season, sometimes we can’t see the forest for the trees. Your commercial real estate clients rely on you for thoughtful and comprehensive tax planning. To ensure that no opportunity is overlooked, you might consider the following:

Has your client purchased any real estate?

  • If so, was a cost segregation study performed to begin maximizing deductions from year one?
  • Was a Unit of Property study performed simultaneously, to create an accurate and complete breakdown of assets useful for capturing further deductions?

Has your client renovated or improved any previously acquired property?

  • Was a Partial Asset Disposition (PAD) Analysis performed to dispose of the remaining cost basis of assets retired, replaced, or demolished?

Has all spend been categorized correctly?

  • Have the BAR and Materiality tests been performed to identify and reclassify any assets that were capitalized but are actually expensable under the TPRs?

Has your client maximized his expensing using the Safe Harbors established by the Tangible Property Regulations?

  • Routine Maintenance Safe Harbor is applicable across the board.
  • Safe Harbor for Small Taxpayers is an extra election for your smaller clients.
  • The De Minimus Safe Harbor, always an excellent source of deductions for AFS taxpayers, was recently strengthened for non-AFS taxpayers as well. If your client does not have an AFS, consider revisiting this Safe Harbor, as the threshold was just raised from $500 to $2500 per item substantiated by an invoice.

Has your client implemented energy-efficient improvements that might be eligible for deductions under EPAct section 179D?

  • The PATH act recently reinstated this provision retroactively for 2015. If your client made significant improvements to interior lighting, HVAC or building envelope in 2015, consider assessing 179D eligibility.

Is your client considering renovations in the near future?

  • Consider a UoP study now, in order to document and breakdown assets that could be written off post-renovation through PAD elections

Does your client engage in research and development that might be eligible for deductions under the R&D credit?

  • The credit was recently made permanent by the PATH Act, and beginning in 2016, the Act will allow small businesses (less than $50M in gross receipts) to use the credit to offset alternative minimum tax (AMT) liability. Furthermore, certain small firms may even be able to offset payroll tax with this credit. This may have tremendous implications for smaller developers in 2016.

Is your client incorporating the new permanent incentives into her long-term planning?

  • The PATH Act made permanent the 15-year SL cost-recovery status of Qualified Leasehold Improvements (QLI), Qualified Restaurant Property (QRP) and Qualified Retail Improvements (QRI). Furthermore, the Act extends Bonus Depreciation for a record five years, at a rate of 50% for tax years 2015, 2016, and 2017.
  • The PATH Act provides an unprecedented level of certainty that clients can rely on when planning expansions, improvements, and so on.

Clearly, there are a number of deduction opportunities available to the commercial real estate owner, with a myriad of associated tax strategies. We’ve updated and streamlined our “TPR Flow Chart” and our “Depreciation Accelerator” to incorporate the many recent changes in legislation while optimizing clarity of design. These tools are an excellent resource and can be extremely helpful in facilitating discussions with clients. Click here if you’d like a complimentary copy of these materials. If you’d like to touch base regarding any of these talking points, feel free to call Terri S. Johnson or Bruce A. Johnson at 215.885.7510.

Image courtesy of Stuart Miles at