2008 Tax Law Update

2008 was another wild year for tax legislation. There were nine tax acts that were enacted in 2008. Due to these vast changes, tax planning has become even more important. Below is a summary of the tax law changes that affect the real estate community:

New Tax Law:

Low Income Housing and Rehabilitation Credits: For buildings placed in service and expenses incurred after 2007, the low income housing and rehabilitation credits can now be used to reduce alternative minimum tax.

Energy Credits: Energy credits arising in tax years beginning after 10/03/08 can now be used to offset alternative minimum tax.

Bonus Depreciation: For property placed into service in 2008, a special depreciation deduction may be claimed equal to 50% of the adjusted basis of qualified property.

Section 179: §179 allows for the immediate write off of qualifying fixed asset purchases. The §179 deduction limit was increased to $250,000, and the qualifying property limit was increased to $800,000.

Qualified Retail Improvements: Qualified retail improvements ("QRI") are now treated as 15‑year MACRS (Modified Accelerated Cost Recovery System) property under the Emergency Economic Stabilization Act of 2008 (aka "the Bailout"). The Act also provides for the straight line method to be used rather than the accelerated method seen in other provisions.

QRI property is defined as:

-The property is an improvement to the interior portion of a nonresidential building,

-The interior portion of the building is open to the general public and used in the retail trade of selling tangible personal property to the general public,

-The improvement is placed in service more than three years after the building was first placed into service, and

-The property is placed in service in 2009.

Extended Provisions:

Qualified Leasehold Improvements: The 15-year MACRS recovery period for qualified leasehold improvements has been extended to include property placed in service in 2008 and 2009.

Qualified Restaurant Property: The 15-year MACRS recovery period for qualified restaurant improvements has been extended to include property placed in service in 2008 and 2009.

Environmental Remediation Costs: The deduction for environmental remediation costs has been extended for two years (2008 and 2009). In order to deduct costs, an election must be made. In certain circumstances, taxpayers will still be required to capitalize remediation costs.

Stay tuned, 2009 tax law is evolving by the minute.

This Blog was authored by David Sobochan, CPA, Cohen & Company. David Sobochan is a senior manager in the tax department and also a member of Cohen & Company's Real Estate Group. Cohen & Company is a highly regarded, regional CPA firm that works with entrepreneurs and private enterprises to help them reach their goals. Beyond the annual tax and audit needs, Cohen & Company's Real Estate Group is often engaged to provide tax minimization strategies, management consulting, cash management, cost segregation analysis, investment analysis, and deal analysis.