Is recent tax reform just in time – or too late?

Real Estate & Infrastructure | Real Estate Weekly (Reprint)

April 27, 2015

2014 was an odd year to understand the impact of taxes on businesses, in particular for those connected to the real estate industry. There have not only been a number of tax laws enacted over the past couple of years, there have been multiple changes to the current tax regime. Last but not least, a tax bill was signed in December which saved multiple valuable tax breaks, but for only one more year. On December 16, 2014, Congress saved many tax breaks that had expired at the end of 2013, and it was uncertain whether they would be extended for 2014. After House and Senate approval, President Obama signed the “Tax Increase Prevention Act of 2014” into law.

Yes, you are reading this correctly — these tax provisions can impact transactions that were entered into earlier this year. Here are some of the more notable extensions:

  • 50 percent Bonus Depreciation on qualified property placed in service in 2014 remains available, as well as accelerated depreciation of qualified leasehold improvements, allowing taxpayers to deduct 50 percent of the basis of the property.
  • Qualified leasehold improvements also will continue to be eligible for a 15 year depreciable life instead of a 39 year life. The same eligibility applies to qualified retail and restaurant property.
  • The reduction of the recognition period from 10 years to 5 years for built-in gains of S corporations which had converted from a C corporation will be continued through 2014. Section 179 limit increases were extended through 2014. Under the extension, a taxpayer may deduct up to $500,000 of qualifying business property provided total investment during the year did not exceed $2 million. Eligible taxpayers may also deduct $250,000 of qualified leasehold improvements.
  • Distributions from an Individual Retirement Account (IRA) directly to a charity are still favorably treated as exempt from taxation under certain circumstances.
  • Two credits have been extended into 2014: the low income housing tax credit for new non-Federally subsidized projects and the residential energy efficiency improvements credit. The tax deduction for commercial energy efficiency improvements has also been extended.

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