Have you previously removed or replaced any structural components of your building(s) such as a roof, HVAC equipment, doors, windows etc.?

If you, or your clients have, there are substantial benefits to conducting an Asset Retirement Study.

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.

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.

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.

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.

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.

A Cost Segregation Study performed In-House, by employees of the company, is often times reviewed with more scrutiny by the IRS.  Here is the summary of the Boddie-Noell Enterprises court case:

• The Company owned and operated approximately 240 Hardees restaurants.
• The two employees who conducted the original cost segregation study used an estimate of a existing study conducted by Hardee’s Food Systems which indicated 24% of the assets qualified for ITC.  They sent questionnaires regarding costs to contractors but didn’t keep those records.
• The IRS examined the methodology and threw out the results of the study.
• The company took it to court and hired an individual cost segregation practitioner to conduct studies on 7 properties prior to trial.
• The practitioner did not visit any of the sites.
• Indirect costs were improperly allocated to the estimated take offs (i.e. the allocation of excavation and other site work to electrical, HVAC, etc.)
• Some costs were taken from estimating books others were randomly assigned or adjusted from the estimating books.
• After examining the methodology the court stated, “The methodology employed by plaintiff…. was at best, unusual.” They also stated that the results of the 7 studies performed by the individual cost segregation practitioner appeared to be “based on after-the-fact speculations”.  The court also found a lack of contemporaneous evidence supporting the corporations’ claims.

If you have a client that owns Commercial or Residential Rental property that is currently profitable, or was profitable within the last five years,  a properly performed engineering based cost segregation study could help reduce their current tax burden or help them qualify for a tax refund.  We can provide a free initial evaluation for the property that you can use to assist them with year end tax planning strategies.

CLICK HERE if you have an interest in getting a Free, No Cost, No Obligation Proposal for a Client.

Typically Building costs are generally classified for federal income tax purposes into three categories.  Each has a different depreciation recovery period and method under the Modified Accelerated Cost Recovery System (“MACRS”):

TANGIBLE PERSONAL PROPERTY
Depreciates Over     5 OR 7 YEARS
At a 200% Declining Balance

LAND IMPROVEMENTS
Depreciate Over         15 YEARS
At a 150% Declining Balance

RESIDENTIAL RENTAL – REAL PROPERTY
Depreciates Over      27.5 YEARS
Straight Line (Residential)

COMMERCIAL – REAL PROPERTY
Depreciates Over      39 YEARS
Straight Line (Commercial)

In most cases, when a property is placed in service, the straight line method is used.  In some cases, the obvious short life items are separated out and the remainder depreciates over the long term straight line method.

President Obama signed H.R. 3548, The Worker, Homeownership, and Business Assistance Act of 2009 into law.  One of the provisions of the act is the extension of a Five Year NOL Carry Back to most businesses for 2008 or 2009.  Previously, under the American Recovery and Reinvestment Act of 2009, eligible small businesses (with average gross receipts of $15 Million or less) were allowed to carry back Net Operating Losses (NOLs) from 2008 for three, four or five years rather than the standard two years.