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

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.

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Senior Tax Specialist Job In San Francisco, CA

TaxConnections has recently been retained to conduct a search for a Senior Tax Specialist for a high profile family office in the San Francisco area.  Rarely is a position available in this very rewarding business environment.

The Senior Tax Specialist is responsible for performing tax compliance and planning functions as well as providing tax support for various family entities, which may include Partnerships, Limited Liability Companies and Corporate entities.  Significant emphasis will be on tax work related to Partnerships and Limited Liability Companies. Responsibilities include the preparation of federal and state income tax returns and forecasts and perform various tax planning and research projects that involve a high degree of complexity.  Respond to audits and information requests from various government authorities.

Responsibilities include the following:

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Rental Real Estate Deduction

The Internal Revenue Service today issued Revenue Procedure 2019-38 that has a safe harbor allowing certain interests in rental real estate, including interests in mixed-use property, to be treated as a trade or business for purposes of the qualified business income deduction under section 199A of the Internal Revenue Code (section 199A deduction).

If all the safe harbor requirements are met, an interest in rental real estate will be treated as a single trade or business for purposes of the section 199A deduction. If an interest in real estate fails to satisfy all the requirements of the safe harbor, it may still be treated as a trade or business for purposes of the section 199A deduction if it otherwise meets the definition of a trade or business in the section 199A regulations.

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Grant Gilmour, Speculation Tax, Canadian Tax Help

What Is The Speculation Tax?

The 2018 budget released by the B.C. Government introduced a new tax on Real Estate effective in the 2018 tax year called Speculation Tax.

Real estate prices in B.C. have increased substantially in the last couple of years and there is increased interest and ownership of B.C. real estate by foreign parties. The speculation tax has been introduced by the B.C. Government as an attempt to help address this. The speculation tax is designed to target foreign and domestic home owners in B.C. who hold non-owner occupied properties which are not qualifying long-term rental properties. This tax will initially apply to homes in Metro Vancouver Regional District (excluding Bowen Island), the Capital Regional District (excluding the Gulf Islands), Chilliwack, Abbotsford, Mission, Nanaimo, Lantzville, Kelowna and West Kelowna.

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What Are Like-Kind Exchanges?

In the event that an investor should be involved with a sale or exchange of real estate, it is critical to understand the benefits and scope of “Like-Kind Exchanges.” Generally, the sale and exchange of property is a taxable event. However, under Section 1031 of the Internal Revenue Code, an investor may qualify for the taxable gain from the exchange to be deferred indefinitely.

Prior to the passage of the “Tax Cuts and Jobs Act of 2017” (otherwise known as the GOP Tax Plan or the Tax Reform Bill), both personal property and real property exchanges were granted the tax-deferred treatment. The new law now limits the deferral treatment for exchanges involving only real estate transactions.

The scope of permissible tax-deferred exchanges is very broad, including the exchange of an apartment building for a vacant lot. However, like-kind exchanges generally do not apply to primary residences and vacation homes. They only apply to exchanges of real property held for the purpose of investment or for productivity use or used in a trade or business. In addition, the property received in the exchange must also be held for the same or similar purpose. Our firm can help an investor decide whether a like-kind exchange is suitable to his or her circumstances.

Why Are Like-Kind Exchanges Beneficial To Investors?

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TaxConnections, Tax Question
Am I Better To Put Rental Real Estate In A Sub-S Corporation, An LLC Or A Partnership?


Every Friday, TaxConnections addresses a question submitted to our Ask Tax Questions platform. We ask our members to offer their thoughts on the question of the week. We realize you may need more information which you can request in the comments section below or on the TaxConnections website directly with our visitor.

Please comment below or login to TaxConnections to answer the Question Of The Week. If you are not a member of TaxConnections sign up here.


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.

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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:

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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.

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

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).

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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