Depreciation Strategies in Real Estate Finance: Maximizing Bonus Depreciation on Qualified Property

Interplay With Interest Deduction and NOL Rules, Phaseout Considerations

Recording of a 90-minute premium CLE webinar with Q&A


Conducted on Thursday, May 14, 2020

Recorded event now available

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Program Materials

This CLE webinar will offer real estate counsel thorough knowledge of the new depreciation rules enacted under the recent tax reform law and explain how the acquisition and improvement of real estate can be structured to take full advantage of tax depreciation. The panel's discussion will include an analysis of what constitutes "qualified property" and strategies for maximizing depreciation deductions.

Description

Tax depreciation deductions have always been an essential aspect of rental real estate finance. Real estate owners can use tax depreciation to reduce taxable income while still generating positive cash flow. In structuring deals post-tax reform, there is much to consider not only from a tax depreciation perspective but from the interplay between tax depreciation and other changes under tax reform, including the interest deduction limitation, the qualified business income deduction and net operating loss (NOL) rules.

Tax reform increased bonus depreciation from 50% to 100% for qualified property. Section 168(k) defined qualified property as assets that have a recovery period of 20 years or less and includes improvements made to existing buildings. Significantly, the recent tax reform also allows bonus depreciation on both used and new qualified property. Now, a taxpayer can purchase an existing property and break out the purchase price to include qualified property that would be eligible for bonus depreciation. Additionally, enhanced Section 179 expensing under the tax reform may provide advantages for improvements of real estate as well.

Counsel's role may include tax planning when representing investors in the acquisition, construction, and financing of commercial property including purchase price allocations and timing for the phaseout of bonus depreciation.

Listen as our authoritative panel discusses depreciation rules enacted under tax reform, including what constitutes qualified property for bonus depreciation and how it might affect deal structure. The panel will also analyze the interplay of bonus depreciation with NOL and interest deductions and timing issues associated with the gradual phaseout of the rules through 2026. Additionally, the panelists will discuss the impact of the CARES Act on depreciation deductions and losses.

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Outline

  1. New bonus depreciation rules
  2. Enhanced Section 179 Deductions
  3. Extension of Section 179D
  4. Strategies to maximize depreciation deductions
  5. Interaction with other areas of tax reform

Benefits

The panel will review these and other key issues:

  • What is "qualified property" under the new tax law?
  • When can bonus depreciation be taken on existing property or portions of existing property?
  • How do the new interest deduction and NOL rules affect bonus depreciation?
  • How should construction be scheduled to take full advantage of bonus depreciation given the phaseout of the deduction from 2023-2026?

Faculty

Johnson, Bruce
Bruce A. Johnson, MBA, CEM

Co-founder and Partner
Capstan Tax Strategies

Mr. Johnson works closely with commercial real estate owners, investors, and accounting firms to provide practical,...  |  Read More

Nitti, Len
Leonard Nitti, CPA, MST

Shareholder
Wilkin Guttenplan

Mr. Nitti has a broad range of clientele including closely-held businesses, high net worth individuals, professional...  |  Read More

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