Federal Reserve Board Sees Improvement
National economic activity expanded at a modest to moderate pace during the period of late November through the end of December.
The reports suggest ongoing improvement in economic conditions in recent months, compared to late spring through early fall.
- Consumer spending was favorable in general. With significant gains in holiday retail sales compared with last year’s season.
- Activity in the travel and tourism sector expanded.
- Demand strengthened further for nonfinancial services, including professional and transportation services.
- Manufacturing activity expanded, generally continuing its steady overall expansion.
- Agricultural producers and extractors of natural resources reported generally robust conditions.
- Residential real estate activity held steady at very low levels. With the only exception being of further increases in the construction of multi-family units.
- Commercial real estate reported stronger demand in the Minneapolis, Kansas City, Dallas, San Francisco, Atlanta and Chicago markets, compared to the earlier 2011 months. The same markets also showed improvement in nonresidential construction activity. Cleveland and Chicago showed the strongest demand. Minneapolis highlighted growing demand for industrial space while San Francisco had growing demand in the technology sector.
- Banking and Finance lending edged up overall, due to increased loan demand from businesses.
2012 Tax Deadline Extended
Jan 4 – The Internal Revenue Service today opened the 2012 tax filing season by announcing that taxpayers have until Tuesday, April 17 to file their tax returns.
A Poorly Performed Cost Segregation Study can lead to IRS scrutiny Years Down the Road
As in the case of Ronald Pearce and Darryl Pearce versus the Department Of Revenue, State of Oregon. CLICK HERE for the full tax case. The plaintiffs chose to perform the cost segregation analysis for their rental apartment properties using the rule of thumb method. They believe their analysis was proper because of their experience in the apartment industry. The cost segregation studies were performed for the 2004 tax year. Years later, in 2006 and 2007 they were audited. Plaintiffs argued that the defendant could not examine a closed year, 2004, to determine the amount of deduction that should properly have been taken in 2006 and 2007.
In conclusion, it was decided that the defendant had the right to examine a closed tax year to recalculate depreciation deductions for open tax years. A poorly performed cost segregation study can haunt you for as long as you apply a depreciation deduction for the property to your tax return. This decision further illustrates the need to select the most qualified provider to perform your study.
They did not follow proper protocol as required by the IRS cost segregation audit techniques guide; expressly the thirteen principal elements which include:
PRINCIPAL ELEMENTS OF A QUALITY COST SEGREGATION STUDY
The 13 principal elements of a quality study are:
1. Preparation By An Individual With Expertise And Experience
2. Detailed Description Of The Methodology
3. Use Of Appropriate Documentation
4. Interviews Conducted With Appropriate Parties
5. Use Of A Common Nomenclature
6. Use Of A Standard Numbering System
7. Explanation Of The Legal Analysis
8. Determination Of Unit Costs And Engineering “Take-Offs”
9. Organization Of Assets Into Lists Or Groups
10. Reconciliation Of Total Allocated Costs To Total Actual Costs
11. Explanation Of The Treatment Of Indirect Costs
12. Identification And Listing Of Section 1245 Property
13. Consideration Of Related Aspects (e.g., IRC § 263A, Change In Accounting Method And Sampling Techniques)
Property Managers Can Build Client Relationships With Cost Segregation
Property Owners entrust Property Managers to maximize the return on their building investment. So why wouldn’t Property Managers suggest cost segregation as an additional cash flow benefit to the Property Owner?
Property Managers have all the viable property information to solicit a no cost, no obligation, cost segregation proposal that will lay out the benefits of cost segregation along with the costs to complete the comprehensive study. The Property Manager can present the proposal to the Property Owner and/or his or her CPA to determine the overall tax benefit to the owner.
Taking this step sends a message to the Property Owner that you are willing to go out of your way, and think outside of the box, in order to maximize the return on their investment; thus, solidifying the relationship between Property Manager and Property Owner.
It Is Not Too Late To Take Advantage Of Cost Segregation For Your 2010 Taxes
There is still time to conduct a Engineering Based Cost Segregation Study in order to meet the September 15th or October 15th deadlines.
If you own a Commercial or Residential Rental building(s) and owe federal taxes with your 2010 return, a properly performed Engineering Based Cost Segregation Study could reduce or eliminate your tax liability.
You owe it to yourself to find out. We will perform a free, no cost, no obligation initial evaluation and prepare a Cost vs. Benefit analysis that will layout the expected benefits and the flat fee required to complete the study. You can then make an educated decision whether or not to move forward with the study based upon the anticipated return on investment.
Go to our Free Proposal webpage for more information or feel free to call us at 866.303.6695.
It Is Not To Late To Elect 50% Step-Down Bonus Depreciation
The IRS is allowing taxpayers the ability to use 100% Bonus Depreciation or step-down to 50% Bonus Depreciation. The Joint Committee on Taxation (JCT) recently released the “General Explanation of Tax Legislation Enacted in the 111th Congress” known as the “Blue Book”(JCS-2-11). In the Blue Book, Congress states that it is their intent that “a taxpayer may elect 50 percent (rather than 100 percent) bonus depreciation with respect to all property in any class of property placed in service during a taxable year.” The IRS has decided to follow JCT’s guidance and allow taxpayers the opportunity to select 50% bonus depreciation versus 100% bonus depreciation for the tax year that includes September 9, 2010 on a class by class basis for assets that were placed in service from September 9, 2010 through December 31, 2010.
This is a reversal from the IRS’s original stand that a step-down election from 100% to 50% bonus depreciation could not be made and the only option for a taxpayer that did not want to take the 100% bonus depreciation was to opt out of bonus depreciation entirely.
If you have already filed your taxes or plan to by April 18th, 2011 without making the 50% step-down election and wish to do so, the IRS has provided an automatic six month extension to make the election provided by Section 301.9100-2(b) of the IRS Regulations. Within the six month extension period, an amended return must be filed, showing the election, with “FILED PURSUANT TO §301.9100-2″ stated at the top of the document and sent to the same address had the filing been timely made. No request for letter ruling is required and user fees do not apply.
At the time of this publication, the IRS has not extended the ability to elect 50% instead of 100% bonus depreciation beyond December 31, 2010.
Do You Have Clients That Purchased or Constructed a Building or Made Leasehold Improvements in 2010?
If so, an engineering based cost segregation study may be able to significantly reduce their current tax burden. We will conduct a free preliminary analysis now, which will show the estimated benefit for their property and our flat fee to conduct the study.
If the additional depreciation from conducting a cost segregation study would benefit your client in the 2010 tax year, there might still be time to complete the study before the April 19th deadline, or an extension filing might be required. Either way we are able to benefit the client in the current tax year.
With up to 100% Bonus Depreciation available, cost segregation is even more valuable than ever before.
Cost Segregation Sample Study: Apartment Building
The two-story apartment building contains 28,000 square feet of gross floor area and is situated on a 1.7 acre site. The land improvements consist of the 40 unit apartment building constructed of concrete, masonry, steel and reinforced concrete slab on grade with standard reinforced concrete spread and strip footings. The building is enclosed with concrete masonry and brick walls, with glass doors at the entrance. The property was purchased in 2008 for $3,500,000. The allocated land value is $700,000 and the value of the improvements is $2,800,000. In the Fall of 2010 the owner added $500,000 in improvements to the property.
CLICK HERE to see the summary benefits including 2010 Bonus Depreciation for this project.
100% Bonus Depreciation and Section 179 Expensing – The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010
This legislation, which was signed into law on December 17, 2010 expands and extends bonus depreciation through 2012. The Act provides 100% bonus depreciation for qualifying assets placed in service from September 9, 2010 through December 31, 2011. For qualifying assets placed in service from January 1, 2012 through December 31, 2012, the Act provides 50% bonus depreciation.
The 50% bonus depreciation provided in the Small Business Jobs Act of 2010 still applies to new assets placed in service from January 1, 2010 through September 8, 2010.
Bonus Depreciation Timeline:
- January 1, 2010 to September 8, 2010 – 50 Percent
- September 9, 2010 to December 31, 2011 – 100 Percent
- January 1, 2012 to December 31, 2012 – 50 Percent
These incentives apply to new/original use assets with a MACRS recovery period of 20 years or less.
In addition, the Act extends S179 Expensing through December 31, 2012. In 2012 a taxpayer may expense up to $125,000 of qualifying assets with a phase-out threshold of $500,000. The higher limits under the Small Business Jobs Act of 2010 are still effective for tax years 2010 and 2011.
Benefit: Businesses that made/make qualifying capital expenditures in 2010 – 2012 will realize greater tax benefits by way of further reducing or eliminating their current tax liabilities.
Consideration: Eligible businesses that are constructing new buildings or making improvements to existing buildings should consider having a cost segregation study performed for the 2010 tax year. A properly performed Engineering Based Cost Segregation Study can significantly increase the amount of project costs that qualify for these incentives.
Review of Section 179 Expensing and Bonus Depreciation of the Small Business Jobs Act of 2010 (HR 5297)
The act increased the maximum amount a taxpayer may expense under IRC 179 to $500,000 versus $250,000 for 2009. Additionally, it increases the phase-out threshold amount to $2,000,000 for tax years beginning in 2010 and 2011.
Moreover, the bill extended first-year 50% Bonus Depreciation available under IRC 168(k) to apply to property acquired and placed in service in 2010. Thus allowing taxpayers the ability to deduct 50% of the depreciation for new assets placed in service in 2010. Effective September 9, 2010 taxpayers are allowed 100% bonus depreciation through The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.