TaxConnections

 
 

Access Leading Tax Experts And Technology
In Our Global Digital Marketplace

Please enter your input in search

Archive for Real Estate

Depreciation: How To Treat Tax-Exempt Non-Residential Real Estate

Depreciation: How To Treat Tax-Exempt Non-Residential Real Estate

Non-profit tenants are popping up all over, and CPAs are often confused about depreciation of these properties.  We’ve gotten so many questions lately… How do I treat this tax-exempt non-residential real estate?  MACRS or ADS?  What about the associated tax-exempt tangible property? What are the appropriate class lives? Is Bonus in play at all? What about QIP?

Our new Flowchart for Tax-Exempt Use Property can help guide users through the decision-making process.  The two-sided, color-coded layout makes it easy to distinguish non-exempt tangible property (orange side) and non-residential real estate (blue side).  Then it’s just a matter of answering the questions and following the prompts.  Like all our Tools, this Flowchart condenses a great deal of information and presents it in a straightforward, user-friendly manner.  Click here to download a copy of the new Flowchart for Tax-Exempt Use Property.

Plus, for more on this subject, check out our latest podcast episode – “Depreciation and the Non-Profit Tenant: What’s the Scoop?”  Click here to listen!

Have a question? Contact Bruce Johnson, Capstan Tax Strategies.

Cost Segregation: Maximize Your Real Estate Tax Savings Now

Cost Segregation: Maximize Your Real Estate Tax Savings Now

There’s so much to consider when embarking on a new construction project. One factor that should always be taken into account is the opportunity for tax savings. There are many favorable tax strategies that can boost a project’s bottom line, and often the key to employing them most successfully is simply good planning. Cost segregation is one of these powerful strategies, and it is primarily used to accelerate depreciation deductions, though it has myriad applications. The benefits of cost segregation on acquisitions, new construction and renovation projects result in significant tax deferrals and improved cash flow.

Cost segregation is an IRS-recognized tax benefit strategy in which
specific components of a building or improvement project are identified and reallocated into modified cost recovery system (MACRS) class lives for federal tax purposes. Treating the assets as personal property or land improvements allows depreciation of these assets to be accelerated. Personal property depreciates over 5 or 7-years and land improvements depreciate over 15-years. This is significantly quicker than conventional 39-year depreciation period.

Read more

Seven Things That Surprise Americans About U.K. Mortgages, House-Buying

Americans Buying Home In U.K.

One of the most memorable moments of their U.K. house-buying experience, for many American expats, is when someone explains to them what the word “gazumping” means.

“Gazumping,” a word which doesn’t exist on the other side of the pond, refers to when the seller of a UK property unexpectedly accepts another, higher offer, typically just as contracts are about to be exchanged.

The term came into widespread use in the UK over the last two decades of the last century, when house prices in London were rising steadily, at times quite fast.

A related word, and one that also isn’t found in an American English dictionary, is “gazunder”, which is when a buyer reduces the amount that they are willing to pay for a property.

Read more

How Real Estate Can Reduce Your Tax Obligation

William Rogers - Real Estate And Tax Breaks

To maximize the tax benefits of property ownership, homeowners, investors and real estate professionals alike need to be aware of the breaks available to them as well as the rules and limits that apply. Whether you’re selling your principal residence, renting out a vacation property or maintaining a home office, tax savings are available if you plan carefully. However, in some cases, tax savings may be reduced under the Tax Cuts and Jobs Act (TCJA).

Home-Related Tax Breaks

There are many tax benefits to home ownership — among them, various deductions. But when you filed your 2017 tax return, the itemized deduction reduction could reduce your tax benefit from some of these breaks. And while that limit goes away for 2018, the TCJA reduces or eliminates these breaks:

Read more

Change In The Use Of Real Estate

In real estate, it is common to change the use of property from income producing to some other purpose such as personal use and vice versa. When a change of use does occur, the property may be deemed disposed of at fair market value. There are different types of changes in use that will be discussed further and their respective tax consequences.

In a partial change in use, a taxpayer is deemed to dispose only a portion of the property. For example, if a property is used 60% for business and 40% for personal and now the property will be used 100% for business, then there will be a capital gain or loss on only 40% of the property at the fair market value. This is under the assumption that the property is personally held. If the corporation owned 100% of the property, then there may not be a capital gain on this partial change of use. However, the individual may have to pay rent at fair market value for their personal use portion.

Read more

How Real Estate Can Reduce Your Tax Obligation

To maximize the tax benefits of property ownership, homeowners, investors and real estate professionals alike need to be aware of the breaks available to them as well as the rules and limits that apply. Whether you’re selling your principal residence, renting out a vacation property or maintaining a home office, tax savings are available if you plan carefully. However, in some cases, tax savings may be reduced under the Tax Cuts and Jobs Act (TCJA).

Home-Related Tax Breaks

There are many tax benefits to home ownership — among them, various deductions. But when you file your 2017 tax return, the itemized deduction reduction could reduce your tax benefit from some of these breaks. And while that limit goes away for 2018, the TCJA reduces or eliminates these breaks:

Read more

Canada Tax: Disposition Of Real Estate For Business Income Vs. Corporation Capital

A disposition of property can be categorized as business income or as a capital gain or loss. There are various factors to consider in determining if the disposition is business income or capital for a corporation.

As capital gains are only 50% taxable in Canada, it is generally more favorable for the taxpayer. However, capital losses are only deductible against capital gains. The capital losses can be carried back 3 years and carried forward against future capital gains. Therefore, your tax advantage may vary depending on the situation. Read more

Canada: Inventory Value of Real Estate

In real estate, once a property is being developed or held for resale it will generally be classified as inventory. It is important that inventory is valued properly as it can have a significant impact on net income year to year.

Real property can be valued at the lower of cost or market value. The method used in valuing a corporation’s inventory must be consistently applied year to year. There must be an acceptable reason for changing methods and it must be acknowledged by Canada Revenue Agency (CRA).

Read more

Canada: Capital Cost Allowance For Real Estate

Capital cost allowance (CCA) is the tax term in Canada for the deduction of amortization on capital assets. There are separate classes of CCA for property, plant and equipment and different rates that apply to each class. There are some specific rules for claiming capital cost allowance related to real estate.
Discussion:

Once construction is complete, a building can be sold as inventory and earn business income, used to earn property income, or used to operate an active business. If the building is not being sold, then it will generally become depreciable property for the corporation. In order to be classified as depreciable property, the building must meet the following conditions:

Read more

Tax Treatment Of Leasehold Improvements

In real estate, property and building leases are common signed agreements between two corporations. Leasehold improvements are generally building additions for the lease space paid for by the tenant (lessee). These costs are considered capital and amortized over the length of the lease.
Discussion:

Common lease periods for real property are 5 to 10 years.

The lease rates are negotiated by the lessor and the lessee at fair market value. The periodic lease payments are a deduction for the corporation. Upon termination of the lease, the leasehold improvements usually revert back to the lessor unless the lessee can remove them. Read more

Ownership Structures In Real Estate

The common types of ownership structures in real estate are owned as an individual, in a corporation, in a partnership or in a joint venture. The type of structure generally depends on the purpose of the use.

Individual Ownership

  • Less complexity but income is taxed at personal tax rates which can be the highest rates.
  • Any losses incurred can be offset against any income.
  • There is no liability protection for the individual besides the insurance policy on the property.

Read more

Canada Tax: Capitalization Of Development Cost Under The Income Tax Act

During the development phase or period of construction, there are many costs that are incurred. The majority of these expenditures are added to the capital cost of property or to the cost of inventory.

Soft costs do not have to be capitalized once the construction is complete or on the day that the building is substantially (at least 90%) used for its intended purpose. An occupancy certificate or completion certificate issued by the municipal building department is sufficient evidence that construction is complete. Read more