The Tax Cuts and Jobs Act has generated a great deal of opportunity for commercial real estate owners, but the TCJA isn’t the only game in town. There are tax savings strategies old and new in play for 2018; thoughtful and comprehensive tax planning is more important than ever. To ensure that no opportunity is overlooked, you might consider the following:
Did you build/acquire any commercial real estate in 2018?
- If so, was a cost segregation study performed to begin maximizing deductions from year one? The 100% Bonus depreciation provision of the TCJA makes this especially useful for both newly constructed and acquired properties.
- Was a Unit of Property study performed simultaneously, to create an accurate and complete breakdown of assets useful for capturing further deductions?
Did you acquire any real estate in the last several years?
- Did you decide a cost segregation study wasn’t “worth it” for such a small property? Consider revisiting that assessment, as certain TCJA provisions have made smaller-basis properties more viable candidates for study. Look-back studies may be performed, allowing you to “catch-up” on missed depreciation in year one.
- Did you decide a cost segregation study wasn’t “worth it” since Bonus depreciation didn’t apply to acquisitions? Under the TCJA acquisitions acquired on or after 9/28/17 are NOW eligible for Bonus depreciation, and many clients are opting to have a study performed.
Did you renovate or improve 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 Tangible Property Regulations?
Have you maximized your expensing?
- New this year – the TCJA permits expensing of certain building improvements under Section 179, including roofs, HVAC, security systems, and more.
- Safe Harbor expensing opportunities under the TPRs are also still in play.
- Routine Maintenance Safe Harbor is applicable across the board.
- Safe Harbor for Small Taxpayers is an extra election.
- The De Minimus Safe Harbor, always an excellent source of deductions for AFS taxpayers, was strengthened for non-AFS taxpayers as well.
Are you planning renovations in the near future?
- Consider a cost segregation study now, in order to document and breakdown assets that could be written off post-renovation through PAD elections.
- Determine your date of construction and service date to take advantage of 100% Bonus depreciation. After 12/31/2022 the Bonus depreciation rate will begin to decline each year.
Did you engage in any like-kind exchanges?
- Under the TCJA, the combination of cost segregation and a 1031 exchange has become an even more important tax strategy. Keep in mind that effective 1/1/2018, only real estate like-kind exchanges are permissible.
Clearly, there are a number of deduction opportunities available to the commercial real estate owner, with a myriad of associated tax strategies. The best way to make sure that you’re making the most of your fixed assets is to partner with experts like your CPA and the Capstan team.