By Sharif Mitchell, Mid-Atlantic Area Leader / Principal, Paradigm Tax Group, NYC
Back in late 2011, the Internal Revenue Service issued temporary and proposed Tangible Property Regulations, also referred to as “repair regulations.” These changes are especially important to those in the hospitality industry, as they apply to the treatment of expenditures incurred in selling, acquiring, producing and improving tangible assets. Repair and maintenance expenses are now deductible if they are not otherwise required to be capitalized. Many of the regulations become permanent in the 2014 tax year, and it is imperative that property owners begin planning for the transition into the new regulations. In addition, property owners are permitted to apply sections of the proposed or final regulations (after their release) to their 2012 or 2013 tax years which translates into additional savings.
It is becomes increasingly difficult for commercial property owners to find funding to make necessary improvements in order to retain or enhance their property's value. However, according to BusinessExcellence, cost segregation studies provide property owners an opportunity to write off depreciation of building assets over a shorter period than the 39-year depreciation period that's typical for real property assets in the United States. This in turn can lead to larger tax reductions, allowing the saved expenses to be used for improvements.
For non-REIT hospitality investors, a Transaction Price Segregation (TPS) performed for the closing of your deal provides you with maximum tax benefits in the form of: