Putting valuable tax dollars back into the
pockets of U.S. businesses for job creation and growth.
Re-printed with permission by author: Craig Miller, CPA, CGFM, MBA, Duffy+Duffy Cost Segregation Services, Inc.
Long-Term Certainty through the Tax Extenders Bill: The U.S. House and Senate waited
until just two weeks left in the calendar year [2015] to pass "The Protecting Americans from Tax Hikes Act of
2015". The new law makes some temporary tax provisions important to
commercial real estate a permanent fixture of tax law. Overall, the $622
billion dollar package of tax breaks extends 52 tax provisions for business and
individuals, and also makes 22 provisions permanent, including the very
business-friendly bonus depreciation, 15-year leasehold improvements, the research and development tax credit, the deduction
of state and local sales taxes, and the $500,000 Sec. 179 expense limit.
These
victories, coupled with what did not happen
in Congress – such as a carried interest tax increase or the elimination of
Section 1031 like-kind exchanges –provide the commercial real estate industry
with remarkable certainty going into the new year. This tax legislation is a major
victory for the commercial real estate industry.
These powerful
incentive programs help businesses grow and successfully compete both in the
U.S. and abroad. Business-friendly provisions such as the extension of Bonus
Depreciation, the Sec. 179 expense election, and the Section 179D tax deduction
for energy-efficient commercial buildings will be a massive help to companies
across the nation. Extremely important among these is the permanent provision
for 15-year qualified leasehold improvement depreciation. In addition, we have
achieved longer-term extensions (five years) and a $3.5 billion allocation for
New Markets Tax Credits. Many of
our local businesses will also benefit by the act delaying the medical device
tax.
Long-Term Financing: Using Depreciation as a Tax Shield –
Depreciation is used by most businesses. An
extremely important source of funds is cash flow added back from
depreciation. We frequently refer to
depreciation as “a source of cash flow”. Proponents of bonus and accelerated
depreciation argue that it is an important incentive to spur business investment
and keep effective marginal tax rates on capital investment low.
According to BEA.gov, on
average, during the last 20 years, businesses raised about 40 % of their funds
internally through retained earnings and depreciation. Since 1982, depreciation
has provided 77 % of those internal funds.
Bonus
Depreciation: Accelerated and bonus Deprecation
allows assets to be depreciated faster than their economic life. Accelerated
depreciation and bonus depreciation is the largest corporate tax break,
allowing companies to deduct the costs of assets faster than their value
actually declines. The preference is the largest in the corporate tax code and
is broadly enjoyed by most businesses. Bonus Depreciation is
extended through 2019. Businesses of all sizes will be able to depreciate 50 %
of the cost of constructed personal property in commercial properties, in land
improvements, and for equipment acquired and put in service during 2015, 2016
and 2017. Bonus depreciation will phase down to 40 % in 2018 and 30 % in 2019.
Section 179: The bill permanently extends small business expensing
limitations and phase-out amounts, and makes permanent the rules allowing for
certain qualified leasehold improvements to be eligible for expensing. It increases the expensing limit to
$500,000. Businesses exceeding a total of
$2 million of purchases in qualifying equipment will have the Section 179
deduction phase-out dollar-for-dollar and completely eliminated above $2.5
million. Additionally, the Section 179 cap will be indexed to inflation in
$10,000 increments in future years.
New R&D Tax Credit Eligibility: The new law will foster innovation and is expected to boost investment by
incentivizing the development of cutting-edge technology with a permanent
extension of both the Research and Development (R&D) Tax Credit. In addition to the permanent extension, for the first time businesses
with less than $50 million in
gross receipts will now be able to claim the credit against their Alternative
Minimum Tax (AMT), thereby removing the single greatest barrier preventing
companies from claiming the credit in the past. Secondly, the bill includes a
provision that opens the credit up for start-ups, allowing businesses with
gross receipts of less than $5 million a
year to take the credit against their payroll taxes (capped at up to$250,000 per
year) for up to five years.
Craig
Miller is president of Duffy and Duffy, Cost Segregation Services, Inc. Duffy +
Duffy is one of the leading Cost Segregation firms in the industry – performing
studies based on case law and IRS guidance using CPA’s, and construction
engineers and estimators. Cost Segregation allows commercial building owners to
generate cash flow by accelerating depreciation deductions on their buildings
and deferring taxes. For more information, contact Craig Miller, CPA, CGFM, MBA at
440-892-3339, or visit CostSegExperts.com
Information
for this article was sourced through BEA.gov and Committee for a responsible
Federal Budget
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