IF YOU OWN COMMERCIAL REAL ESTATE, then the following is required reading.....

Implications of the American Recovery and Reinvestment Act of 2009

Congress has approved and the President has signed new economic recovery legislation, the American Recovery and Reinvestment Act of 2009 (ARRA) Pub.L. 111-5, H.R. 1, S. 1). The IRS is implementing tax-related provisions of this new program as quickly as possible.

What this means:

There are a few limited areas in the ARRA that affect 2008 tax returns. For some small businesses, changes in the net operating loss provisions could affect 2008 tax returns.

Net Operating Loss (NOL)

Small businesses experiencing losses in tax years beginning or ending in 2008 can benefit from a provision that allows them to apply the loss to previous years’ income for as many as five years before the year in which the loss takes place, potentially producing a tax refund for the prior year. Normally, losses can be “carried back” only to the two previous years.

5-Year Carryback of Net Operating Losses for Small Businesses. Under prior recent law, net operating losses (“NOLs”) could only be carried back to the two taxable years before the year that the loss arose (the “NOL carry back period”) and carried forward to each of the succeeding twenty taxable years after the year that the loss arose. For 2008, the bill extends the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less (it imposes no limit on the basis of real or personal property carried on the books by businesses). This proposal is estimated to cost $947 million over 10 years.

(US SENATE FINANCE, HOUSE WAYS & MEANS COMMITTEE Feb 12, 2009)

This 5-Year carryback of NOLs reduces the tax liability for a previous year, from 2004 to 2008, and qualifies the company for a tax refund in 2009. This, in essence, ultimately boosts the client’s cash flow. Obviously, clients who are losing money in 2008 (as many were) but who had reportable (taxable) gains in 2003 – 2007 can see increased benefits from cost segregation.  Further, if cost segregation is applied prior to obtaining financing we can enhance your NOI, lower your tax obligation and obtain better terms and conditions.

Extension of 50% Bonus Depreciation

Last year, Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write-off fifty percent of the cost of depreciable property acquired in 2008 for use in the United States. The 2008 Economic Stimulus Act allowed taxpayers to expense 50 percent of the cost of qualifying new property placed in service during the period beginning January 1, 2008 and ending December 31, 2008, regardless of the taxpayer’s taxable year. The ARRA extends this temporary benefit for capital expenditures incurred in 2009 through December 31, 2009. This proposal is estimated to cost $5.074 billion over 10 years.

(US SENATE FINANCE, HOUSE WAYS & MEANS COMMITTEE Feb 12, 2009)

Eligible property must be either: A) have a depreciation period of 20 years or less or be qualified leasehold property. B) it must be acquired under a binding written contract entered into during 2008. C) The manufacture, construction or production of the property must have been for the taxpayer’s own use during 2008. For property with a depreciation period of 10 years or longer, Congress extended the placed-in-service date through December 31, 2009. Construction started in 2007 does not qualify for this stimulus package.

Please contact our office for further information about the relationship between Cost Segregation and Financing.  Office: 859-983-6740.