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The Benefits of Cost-Segregation Studies 

When a commercial property is purchased or constructed, a building asset is created and the dollars are entered into a fixed asset system as 39 or 27.5 year property. Using the straight line method,

Cost-Segregation Solutions 

Cost segregation is an accepted Internal Revenue Service method of allocating the purchase price paid for real estate property. Generally, cost segregation enables owners to increase the depreciation deductions from their properties, providing substantial present value benefits by reducing income

Clarifying Entity Classification Conversions 

Two recent Internal Revenue Service rulings on the tax treatment of converting single member limited liability companies into partnerships and vice versa likely will affect the commercial real estate industry because many transactions take place with partnerships and other entities

Accrual-Basis Taxpayers Lose the Use of Installment-Sales Tax Break 

Congress periodically has provided taxpayers with relief from the burden of current income tax liabilities generated in qualified transactions. Internal Revenue Code Section 1031, which governs like kind exchanges, is a familiar example of such a provision that allows taxpayers

5 Tax Tips for Developers and Investors 

In today&rsquo s economy it is essential for commercial real estate professionals to be aware of tax planning opportunities and the potential cash savings available to their companies. The following five tax tips may help real estate owners and developers

Analyzing Local Tax Laws Can Save Property Owners Money 

Property taxes are a major expense for commercial property owners often second only to financing costs. Yet many owners resign themselves to rising property tax expenses, accepting their annual assessments as a cost of doing business. Because property values rise

Are You a Candidate for an IRS Audit? 

Benjamin Franklin is credited with observing, “In this world, nothing is certain but death and taxes.” To whom taxpayers answer in death is a question of debate, but there is no question that U.S. taxpayers must answer to the Internal

Commercial Developers May Gain Basis Allocation Advantage 

A recent U.S. Tax Court decision may provide commercial developers with another creative tax planning tool, based upon a long standing basis allocation rule available to residential developers. In a series of judicial decisions dating back to the 1950s, courts

Constructive Receipt: Timing Is Everything 

A fundamental principle in efficient tax planning is the contemplation of the timing of income and loss events. While this principle seems relatively elementary, determining when a tax item actually becomes taxable can be more complex. Statutory Background IRC Section

Creative Planning May Reduce State Taxes 

State and local taxes represent an increasing portion of the overall tax cost of any real estate transaction. As more businesses become national and even global, state and local tax planning become more crucial. In early March, the New Jersey

Exchange With Caution 

Congress addressed what it considered to be abusive sale leaseback transactions involving tax exempt entities, known as sale in, lease out, or SILO transactions, by creating Internal Revenue Code Section 470 as part of the American Jobs Creation Act of

Disappearing Lease Detour 

During the last several years, many tax deferred exchangers sold properties for a premium but found it challenging to locate and buy suitable replacement properties. Construction exchanges are a growing alternative because taxpayers can build value into the property to

Cost Segregation Helps Property Owners Maximize Depreciation Deductions 

While most property owners are aware of depreciation benefits, few take full advantage of them. It is rare that a building's entire cost is depreciated over the 39 year or 27.5 year life assigned to real property, but when owners

IRS Ruling on Passive Activity May Offer Tax Break Possibilities 

Taxpayers often consider depreciable real estate a viable investment vehicle because of its potential for capital appreciation and cash flow and its inherent qualities as a tax shelter. From a purely tax perspective, depreciable real estate historically provides a positive

Leasehold Interests Offer Alternative 1031 Exchange Options 

Typical Internal Revenue Code Section 1031 exchanges involve the sale of real estate and the acquisition of like kind replacement property. Basically, property held for investment is like kind with any other property held for investment. Fee title investment real

Job Creation Act Increases Tax Savings for Commercial Property Owners 

In March, Congress passed the Job Creation and Worker Assistance Act of 2002. While the act contains provisions affecting many industries, it may offer commercial real estate property owners and companies specific tax saving benefits. Bonus Depreciation Provision Under the

IRS Clarifies Reverse Exchange Qualifications 

The Internal Revenue Service's recent Revenue Procedure providing a safe harbor for reverse like kind exchanges adds clarity to what has been a hazy situation. In the past, many taxpayers have been hesitant to enter into reverse exchanges due to

QI Questions 

The unregulated Section 1031 exchange industry has suffered instances of misappropriated client funds, breaches of fiduciary duty, theft, and qualified intermediary bankruptcy filings. The task of qualifying a QI has become paramount for real estate investors and their advisers. Understanding

New Tax Rules Offer REITs More Flexibility 

Significant new federal income tax rules governing real estate investment trusts will allow REITs to compete on a more level playing field. Without being penalized, REITs now may operate and maintain control of companies that provide valuable services to their

Proposed Rules Affect Reorganizations Involving Disregarded Entities 

Proposed Internal Revenue Service regulations could affect tax planning for mergers involving commercial real estate structures such as real estate investment trusts that use disregarded entities. The proposed regulations will limit the number of reorganizational structures available to corporate taxpayers

QER Expenditures May Provide Tax Breaks for Brownfield Redevelopers 

When commercial real estate professionals advise their clients on redeveloping brownfield properties, they should consider the tax implications. The treatment of costs incurred to remediate environmentally damaged sites might affect a project's economic feasibility. Remediation Cost Considerations The time during

Partnership Abandonment May Not Be a Capital Offense 

When selling real property, individual taxpayers generally prefer to declare the profit as a capital gain rather than ordinary income because of the lower marginal rate on capital gains. But in the case of losses, this logic often is reversed

Reverse Exchanges Offer Investors Tax-Saving Benefits 

In an Internal Revenue Code Section 1031 exchange, when an investor must purchase the replacement property before the relinquished property can be sold, he should consider using a reverse exchange. In September 2000, the Internal Revenue Service clarified its position

QRPBI Exception Calculations 

Two calculations must be applied that limit the amount of excludable cancellation of debt income when utilizing the qualified real property business indebtedness exception to COD income. While these calculations are complex and not comprehensively covered in this article, this

Retail Tenants Get Tax Break for Construction Allowances 

For years, federal income tax law was unclear about how to treat payments that owners or landlords make to tenants for construction allowances to improve leased retail space. Last September, the Internal Revenue Service adopted final regulations on previously created