Tax Planning Opportunities – Renovations of Commercial Real Estate27-Mar-2018
In our earlier installment about How Tax Reform Affects Owners of Commercial Real Estate, we covered some of the basic changes to tax law brought about by the Tax Cuts and Jobs Act (TCJA), which is the most extensive piece of tax legislation in over 30 years. This article will present some tax planning opportunities that have been enhanced by this important tax reform.
Qualified Improvement Property is a new class of fixed assets defined by TCJA as interior improvements to a non-residential building
Assuming qualified improvement property will be subject to a 15-year depreciation period and will be subject to 100% bonus depreciation, what does that mean in practical terms? If a taxpayer purchases a pre-owned building, most of the modifications to the interior of the building will be qualified improvement property. This could make a “fixer-upper” a more attractive option than building from the ground up. Of course, there are many other considerations besides income taxes, but this benefit certainly can “sweeten the pot.”
We will definitely need to keep an eye out for any clarifications to this law to make sure our assumptions hold true, but it appears that there will be tax advantages to renovating vs. building new. Future installments will address any changes or clarifications to the treatment of qualified improvement property.
John R. McCallum is a member with GranthamPoole PLLC and a recognized leader in the field of cost segregation and various real estate taxation matters. He has also written, taught, and spoken on many topics in the area over the years. Please contact John at firstname.lastname@example.org, www.linkedin.com/in/john-mccallum, or 601-499-2400. CPA License # 5323
***The above does not represent tax advice. Each situation is fact-dependent, and you should seek the advice of a competent advisor. GranthamPoole PLLC is a provider of tax, accounting, advisory and strategic services, partnering with clients across a broad spectrum of industries and sizes.