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January 2010
Depreciation News You Can Use
A newsletter to better serve the business community.
Trip Giveaway
 
Your Tax Season Reward!!
 
 Win 7 Days / 6 Nights Accommodations At
'The Cliff at Cupecoy' in St. Maarten
 

Pool

Click here for the entry form.
 
More information on the property can be found here.
 
Video Presentation

Please visit our website at www.CRScostseg.com to view our video presentation on cost segregation. The video provides a brief description of cost segregation and its benefit to you and your clients.
 
The video can be accessed through the scroll bar at the top of our home page.
Ask The Experts
 
One of the most frequent questions we receive from accountants is, 'How do I properly depreciate the additional basis that is capitalized when I make an IRC Section 754 election for the acquisition of a partnership interest or an inherited property?'

 

This is an important question as it can have a material impact on the tax position and cash flow of a taxpayer. We will show you how to maximize your client's cash flow when an IRC Section 754 election is made.

 

What is an IRC Section 754 election?

 

There are several common occasions where additional basis is added to a property's depreciation schedule including:

 

 acquiring a partnership interest in a property; and

 inheriting a property as part of an estate.

 

The new owner of the property will assume the previous owner's basis (inside basis) in both of these cases.  The amount paid for the partnership interest, or the fair market value of the property transferred from the decedent to the successor becomes the total tax basis in the property (outside basis). The difference between the inside and outside basis can be considerable.

 

An IRC Section 754 election allows a partnership to equalize a new owner's basis in a property. Without this election the disparity in the inside and outside basis can deprive the new partner of depreciation deductions and inflate their share of gain from subsequent property dispositions.

 

Optimum Treatment of Step-Up Basis

 

The step-up can generate a considerable amount of additional basis and future depreciation, especially if the property was held by the decedent or previous partner for a significant amount of time and is fully depreciated. Many accountants will depreciate the step-up over 27.5 or 39 years. There is a better way.

 

We look to IRC Section 755, which specifies the rules for allocating an incoming partner's basis adjustment to particular assets.  We can treat the additional basis as an acquisition of property and apply MACRS rules as is typically done in any acquisition.  Therefore, the relative fair market values of the 5, 7 and 15 year property should be determined to properly allocate basis.  This results in accelerated depreciation deductions which can reduce taxable income and increase cash flow. Cost segregation is a viable solution in this situation.

 

This can be especially helpful for an estate transfer where properties are mostly depreciated and are generating significant income in the hands of the successor.  Without these accelerated deductions, the successor will be stuck with a lot of taxable income and a large tax liability.

 

 
 
The CRS Advantage
Cost Recovery Solutions, LLC (CRS) is a specialized engineering firm trained exclusively in the unique discipline of Cost Segregation. CRS has distinguished itself as an industry leader by providing their clients with a seamless integration of cost segregation into their business. We are the cost segregation provider many accounting firms employ as their cost segregation resource due to our unique qualifications which include:

  • Our tax director has lectured extensively on the topic of cost segregation including his recent presentation at the AICPA national Practitioner's Symposium
  • The IRS consulted CRS in developing their current Audit Techniques Guide on cost segregation
  • Our engineering director is one of a small group of accredited senior appraisers (ASA) in the disciplines of both 'Cost Surveys' and 'Machinery and Equipment' from the American Society of Appraisers
Contact Us
For more information or a complimentary projection of benefits, please contact:

Jerry Kootman
Managing Tax Director
jerry@crscostseg.com

Cost Recovery Solutions, LLC
www.crscostseg.com
407 Main Street
Metuchen, NJ 08840
Phone: (732) 548-3855
Fax: (732) 549-8844



Jerry Kootman
 
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