Incentive to Close by Year End Under the TCJA, an investor can take 100 percent bonus depreciation if a qualified real property is acquired before January 1, 2023 By John Nielsen Ten-X Mid-Atlantic Regional Director September 19, 2022
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It’s surprising when people are surprised that a real estate developer [who was also the 45th president of the United States at the time] included legislation within the Tax Cuts and Jobs Act of 2017 (TCJA) which had a dramatic effect on commercial real estate and most significantly, investors and developers. While REITS were a beneficiary of the lowered corporate tax rate and their investors also benefited from qualified business income deductions (Section 199A) some have glanced over the hidden gem of this legislation; depreciation, and time is running out to qualify.
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The taxpayer or its predecessor didn’t use the property at any time before acquiring it.
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The taxpayer didn’t acquire the property from a related party.
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The taxpayer didn’t acquire the property from a component member of a controlled group of corporations.
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The taxpayer’s basis of the used property is not figured in whole or in part by reference to the adjusted basis of the property in the hands of the seller or transferor.
Under the TCJA, the real estate industry gained a new benefit when considering depreciation. If a qualified real property is acquired after September 27, 2017, and before January 1, 2023 an investor can now take 100 percent bonus depreciation, The 100% allowance generally decreases by 20% per year in taxable years beginning after 2022 and expires Jan. 1, 2027. You should consult a tax professional to make sure a property qualifies however new construction and existing assets are both applicable and the below factors also apply:
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The taxpayer’s basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent.
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Also, the cost of the used property eligible for bonus depreciation doesn’t include the basis of property determined by reference to the basis of other property held at any time by the taxpayer (for example, in a like-kind exchange or involuntary conversion).
Tax Cuts and Jobs Act Buttons. (Getty Images)
The TCJA increased the maximum deduction to $1 million and increased the phase-out threshold to $2.5 million. It also modifies the definition of section 179 property to allow the taxpayer to elect to include certain improvements made to nonresidential real property. Qualified leasehold improvement property, qualified restaurant property and qualified retail improvement
property are no longer separately defined and given a special 15-year recovery period under the new law. You still have time to close on a property by year end and qualify for these incentives. Consult a tax professional to determine what is best for your business and investment strategy.
2019
2020
2021
2022
Section 179 Maximum Deduction
$1,000,000
$1,040,000
$1,050,000
$1,080,000
Phase-out threshold
$2,500,000
$2,590,000
$2,620,000
$2,700,000
Bonus Depreciation
100%
100%
100%
100%
Equipment
New and used for both
New and used for both
New and used for both
New and used for both
Cited Sources Brandon Theus. “Impacts of the Tax Cuts and Jobs Act of 2017 on Real Estate Ownership and Investment.” June 7, 2022
https://www.americanbar.org/groups/gpsolo/publications/gp_solo/2022/may-june/impacts-the-tax-cuts-and-jobs-act-2017-real-estate-ownershipand-investment.
“New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act.” April 9, 2018 https://www.irs.gov/newsroom/new-rules-and-limitations-for-depreciation-and-expensing-under-the-tax-cuts-and-jobs-act.
Marilynne Clark. “Current Tax Treatment For Tenant Improvements.” November 2nd, 2020 https://www.colliers.com/en/news/houston/current-tax-treatment-for-tenant-improvements.
Oct/Nov 2022
Ten-X.com
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