Industry Alert: Notice 2022-61 Clarifies Prevailing Wage And Apprenticeship Requirements Under The IRA

On November 30, 2022, the IRS issued Notice 2022-61, providing initial guidance on the wage and apprenticeship requirements included in the Inflation Reduction Act of 2022.  The IRA established increased benefit levels for energy-efficient incentives related to EPAct 179D and 45L that may only be obtained when prevailing wage and apprenticeship requirements are satisfied.  This Notice provides additional detail regarding these requirements, associated recordkeeping, and project timing.   

The prevailing wage and apprenticeship requirements delineated in the Notice will apply to facilities for which construction begins on or after 1/30/2023.   

PREVAILING WAGE RATE REQUIREMENTS  

The “Prevailing Wage” requirement states that mechanics and laborers must be paid no less than the prevailing wages required to be paid for federal construction work.  (The wage will vary based on exact job description and geographic location.)   

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3 Cost Segregation Trigger Events In Real Estate Life Cycle

While cost segregation is useful throughout the real estate life cycle, there are certain events that tee up particularly strong cost seg opportunities. These events should automatically trigger consideration of a cost segregation study, since picking the right moment can maximize benefit.  Read on for our top 3 cost segregation study triggers – so you can proactively recognize opportunity.   

1. New Construction of Commercial Property 

Cost segregation takes advantage of the time value of money by front-loading depreciation to the early years of ownership.  As such, to maximize savings from Year 1, a cost seg study should ideally be performed as soon as a newly constructed property is placed-in-service 

Consider a newly constructed hotel placed-in-service in 2021 (100% bonus in play.)  Capstan was retained to perform a study immediately after construction was completed.   

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Top 10 Must Knows Before Diving Into Tax Year 2022

10. 179 Expensing May Play a Larger Role in 2023 and Beyond:

With 100% bonus rates set to phase down starting in 2023 (see #3 below), Section 179 Expensing may step up.  With a larger deduction of $1.08M for TY 2022, and the ability to immediately expense the full cost of an asset, Section 179 Expensing may soon carry more weight in a comprehensive tax plan. There are several nuances to be aware of – including potential state-specific limitations – but we anticipate more strategic bonus/179 Expensing interplay moving forward. 

9. New Audit Technique Guideline (ATG) Points Focus in New Directions:

In June of this year the IRS released an updated version of the Cost Segregation Audit Technique Guideline for the first time since 2017. By examining the ATG, taxpayers can anticipate what Examiners will focus on in the unlikely event of an audit. The 2022 update points out two new areas of focus – the importance of identifying land values is stressed, and an entire new chapter is added on electrical distribution systems. 

8. Rise of the Non-Profit Tenant:

We’re seeing many retail and office buildings bringing non-profit or government tenants into their properties. This trend may have a huge impact on the way depreciation rules are applied in those properties. The good news is that – depending on circumstances – the taxpayer might not be locked into ADS class lives. This topic is very nuanced, so we covered it in both a feature article and an episode of our podcast, Capstan Live! 

7. 754 Step-Ups – Don’t Miss the Opportunity:

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The Inflation Reduction Act of 2022: Transforming 179D and 45L

Date: Wednesday, November 9th 2022
Time: 12:00PM EST, 1 CPE CREDIT

The passage of the Inflation Reduction Act of 2022 (IRA) has transformed energy-efficient tax incentives for commercial real estate. The IRA will alter and amplify both the 179D Deduction and the Section 45L Tax Credit. In this all-new webinar, we will compare the current version of each incentive to the “IRA Version” of the incentive, addressing changes to reference standards, calculation of incentives, documentation procedures, and more. New exciting initiatives including utility sales tax recovery, C-PACE, and more will also be discussed. Numerous real-life case studies will be reviewed, and a variety of reference tables will be provided.

Learning Objectives:
* Compare the requirements for claiming the 179D deduction under both the old and new laws
* Understand how the 179D deduction is calculated under the Legacy Program and under the IRA
* Recognize other changes to 179D under the IRA, including the elimination of partial deductions and the establishment of deduction reset
* Compare the requirements for claiming the 45L Tax Credit under both the old and new laws, and the associated differences for single-family and multifamily dwelling units
* Become familiar with solar energy incentives, the benchmarking process, and C-PACE
* Learn about NYC’s new Carbon Emissions Bill, and recognize potential implications in New York and beyond

REGISTER HERE, FREE CPE

Meet Bruce Johnson, Capstan Tax

A Perfect Match: Choosing Referral Partners That Add Value

A Perfect Match: Choosing Referral Partners That Add Value  

Today’s CPAs serve as true partners and trusted advisors to clients, becoming intimately familiar with each client’s growth, plans, and struggles.  This means that when the need may arise to augment in-house services, most CPAs won’t partner with just anyone. Many CPAs are wary of recommending consulting firms, concerned that an unsuccessful engagement might damage the client relationship. No matter what type of referral partner is being considered – financial services firm, insurance firm, 1031 exchange firm, cost segregation provider, or any other – the CPA firm must do their research and carefully select someone they trust to take care of their clients.  

I’m not really comfortable with the idea of a referral partner. Why can’t we keep things in-house? 

Depending on the nature of your firm, maybe you can. However, as the tax code gets deeper and more complex, it’s becoming difficult for all but the largest firms to have every necessary expert just down the hall. For example, cost segregation is a specialty service requiring knowledge of construction methods, engineering, and the Internal Revenue Code for fixed assets including applicable Tax Court cases and Revenue Rulings.  The concept of accelerated depreciation may seem simple, but depreciation law and building technologies are anything but. A detailed, defensible cost segregation study can only be performed by an experienced engineer, and most CPA firms don’t have the volume to justify keeping those niche resources in-house. Partnering with a qualified cost-segregation firm like Capstan allows a CPA firm to provide a value-added service without keeping engineers on staff. 

What will the right referral partner (RP) do for my firm?  

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Register Today For R&D Tax Credits Webinar (CPE Credit) - Attend On Wednesday, October 19th, 2022

R&D Tax Credits 101

Oct 19, 2022: Starts 12:00 NOON Eastern Time Zone
(US and Canada)

Complimentary Webinar With 1 Hour CPE Credit

REGISTER HERE

Description:
The session will begin with a brief overview of the credit, highlighting its utility in a plethora of industries, and addressing credit benefits, limitations, and timing. The presenter will then walk through the Four-Part Test, using real-life examples to illustrate what types of research meet eligibility criteria. The four types of Qualified Research Expenses will be explained, and the presenter will review the associated information-gathering process. Discussion will then pivot to credit flow and utilization, including the Eligible Small Business Provision, and a variety of scenarios will be presented. 

Learning Objectives:
• List multiple industries that may be engaged in R&D Credit-eligible research
• Explain the eligibility criteria that compose the Four-Part Test
• Name the four types of Qualified Research Expenses
• Identify good candidates for R&D Tax Credit studies
• Understand credit flow in S-corps and C-corps
• Understand credit utilization and the Eligible Small Business Provision

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Inflation Reduction Act of 2022: Transforming 179D And 45L (Complimentary Online CPE)
Inflation Reduction Act of 2022: Transforming 179D and 45L
Time: Nov 9, 2022 12:00 PM in Eastern Time (US and Canada)
REGISTER HERE

The passage of the Inflation Reduction Act of 2022 (IRA) has transformed energy-efficient tax incentives for commercial real estate. The IRA will alter and amplify both the 179D Deduction and the Section 45L Tax Credit. In this all-new webinar, we will compare the current version of each incentive to the “IRA Version” of the incentive, addressing changes to reference standards, calculation of incentives, documentation procedures, and more. New exciting initiatives including utility sales tax recovery, C-PACE, and more will also be discussed. Numerous real-life case studies will be reviewed, and a variety of reference tables will be provided.

Learning Objectives:
* Compare the requirements for claiming the 179D deduction under both the old and new laws
* Understand how the 179D deduction is calculated under the Legacy Program and under the IRA
* Recognize other changes to 179D under the IRA, including the elimination of partial deductions and the establishment of deduction reset
* Compare the requirements for claiming the 45L Tax Credit under both the old and new laws, and the associated differences for single-family and multifamily dwelling units
* Become familiar with solar energy incentives, the benchmarking process, and C-PACE
* Learn about NYC’s new Carbon Emissions Bill, and recognize potential implications in New York and beyond

Course Outline:

R&D Tax Credits - Complimentary CPE Credit

R&D Tax Credits 101

Oct 19, 2022 12:00 PM in Eastern Time (US and Canada)

REGISTER HERE

Description:
The session will begin with a brief overview of the credit, highlighting its utility in a plethora of industries, and addressing credit benefits, limitations, and timing. The presenter will then walk through the Four-Part Test, using real-life examples to illustrate what types of research meet eligibility criteria. The four types of Qualified Research Expenses will be explained, and the presenter will review the associated information-gathering process. Discussion will then pivot to credit flow and utilization, including the Eligible Small Business Provision, and a variety of scenarios will be presented.

Learning Objectives:
• List multiple industries that may be engaged in R&D Credit-eligible research
• Explain the eligibility criteria that compose the Four-Part Test
• Name the four types of Qualified Research Expenses
• Identify good candidates for R&D Tax Credit studies
• Understand credit flow in S-corps and C-corps
• Understand credit utilization and the Eligible Small Business Provision

Free CPE Credit - 1 Hour

Focus On The Market: The Utility Cost of Segregation

Time: Oct 12, 2022 12:00 PM in Eastern Time (US and Canada)

Register Here

Description:
This innovative case-based presentation reviews current tax strategies by taking attendees on a tour of different segments of the market. The session will begin with a brief overview of Cost Segregation, highlighting its utility throughout the real estate life cycle, and its crucial role as the vehicle for savings. The presenter will then pivot to discussing Bonus Depreciation, the Tangible Property Regulations, and Partial Asset Disposition using real examples from the manufacturing sector. Commercial rental property will then serve as the basis of a discussion of Qualified Improvement Property and the CARES Act. After additional residential real estate examples, the presenter will close with a discussion of Section 179 Expensing and how it can be employed most strategically. A survey of assets relevant to each market sector will be reviewed.
Learning Objectives:
* Understand how cost segregation is the vehicle by which tax savings opportunities are obtained
* Identify possible opportunities for cost segregation throughout the real estate life cycle
* Recognize assets eligible for cost segregation in a variety of market sectors
* Review the impact of the CARES Act on Qualified Improvement Property
* Become familiar with Section 179 Expensing
* Review the interplay between bonus, 179 and the TPRs
Course Outline:
Overview of Cost Segregation
Construction/Manufacturing Industry
Survey of Assets
Bonus, TPR, and PAD Case Studies
Commercial Rental Properties
Survey of Assets
QIP Case Studies
Residential Rental Properties
Survey of Assets
Section 179
A Comprehensive Plan Expensing Hierarchy
Recommended CPE: 1.0 Credit
Program Level: Beginner/Intermediate
Prerequisites: General Background in Accounting, Depreciation and Cost Segregation
Advanced Preparation: None
Field of Study: Taxes
Bruce Johnson - The Importance Of A Cost Segregation Study

What is Cost Segregation?

Cost segregation is a tax planning strategy that can help real estate owners and tenants to accelerate depreciation deductions. Although standard depreciation occurs over a lengthy 39-year period, many assets within a structure–from plumbing and electrical fixtures to flooring–are not designed to last that long.

The ability to break out such assets for a five-year, seven-year, or 15-year recovery period helps accelerate depreciation, defer taxes, and improve cash flow.

Invest In An Engineering-Driven Cost Segregation Study

An engineering-driven cost segregation study can be useful at any point in the real estate cycle. Whether a property has been newly constructed, recently acquired, or undergone renovations or tenant improvements, a cost segregation study is likely to be a valuable depreciation tool. In certain cases, a look-back study can be appropriate.

Bottom line: If you own your building or if you’ve made improvements (as an owner OR a tenant), you may benefit from a cost segregation study.

Benefits Of Leveraging Cost Segregation

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Might You Be Eligible For An R&D Tax Credit?

R&D Tax Credits?  We’re a bottling plant, not a science lab.  I doubt we’re eligible…”

A common misconception is that the R&D Tax Credit is only available to businesses engaged in traditional scientific experimentation – pharmaceuticals, biomedical research, and the like.  However, the federal tax credit is intended to incentivize companies in a plethora of industries to develop new and improved products and processes.   This powerful, permanent, dollar-for-dollar reduction isn’t just for the so-called “white-coat industries.”

And it’s worth looking into… The credit provides improved cash flow, offering up to 10 cents in benefit for every qualifying dollar identified in a performed study.  It may be carried back one tax year and forward up to 20 years.

A business in almost any industry can be eligible, if it meets the Capstan Criteria:

1.       Research is happening to create or improve a business component.  (A “Business Component” is whatever the business is trying to develop, be it a product, process, technique, formula, etc.)

2.       The research is trying to eliminate uncertainty.  (How can we make this?  Can we even make this?)

3.       The research involves experimentation of some kind where different alternatives are evaluated.  (Scientific laboratory work, 3D modeling, architectural design, computerized simulations, etc.)

4.       The research is technological in nature.  (Keep in mind, that doesn’t mean that the final product is part of a technical field.  The fidget spinner, for example, is just a toy.  But researching the shiniest paint that won’t flake off the toy does require a technological analysis.)

Once eligible, a business can take Qualified Research Expenses (QRES), which are the costs involved in performing the research.  Wages, supplies/materials, cloud hosting, and third-party contractor fees can all be expensed using the R&D Tax Credit.

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Tax Savings In A Multi-Family Market With Cost Segregation

The multifamily market remains very strong as an investment.  Along with providing the opportunity to earn rental income, multifamily projects offer a number of tax benefits to the thoughtful investor.  In fact, we’re finding that investors view the tax savings associated with cost segregation as a major reason to consider the multifamily sector.  Since 2018, one of the major drivers has been 100% bonus depreciation for both new and used assets having a shorter than 20-year MACRS class depreciation life.  Prior to the TCJA, you could only take bonus on new construction and renovation assets.  Getting bonus on acquisitions has had a huge impact on commercial real estate, especially the multi-family sector.        

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