100% Bonus Depreciation
IRS Permits Taxpayers To "Expense" Many Improvement Costs For A Limited Time
Many clients ask us how they can expense capital improvement costs to decrease Federal income taxes. Although it usually turns out they need to depreciate these assets over a combination of 5, 7, 15, 27.5, and 39 years as per IRS regulations, the IRS has now effectively created the ability to "expense" a large amount of improvement costs with the introduction of 100% first year bonus depreciation through December 31, 2011.
This lucrative tax break will increase cash flow for commercial real estate companies as well as other businesses that own real estate such as medical practices, data centers, manufacturers, day care, restaurants, auto dealerships, and assisted living.
Without a detailed cost segregation analysis following IRS guidelines, many of the assets eligible for bonus depreciation will unfortunately be incorrectly classified as real property and depreciated over 27.5 or 39 years. The ability to analyze all components such as electrical and plumbing will generate additional assets eligible for "expensing" and uncover additional tax savings.
Proper planning is critical for maximizing cash flow with this short term attempt to stimulate development.
Delays in completing a project of just a few days can make a dramatic difference because bonus depreciation reverts back to 50% in 2012. For example, completing a $5M office building in December 2011 instead of January 2012 would generate additional depreciation of approximately $400,000 and tax savings of $180,000 for the year the project is placed in service.
Call us at 732.548.3855 so we can add value to your next project through bonus depreciation and other specialty tax planning ideas.
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