Essay Example on Last month the President signed into law H R 1 the Tax Cuts

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Last month the President signed into law H R 1 the Tax Cuts and Jobs Act TCJA a comprehensive tax reform law that will change the entire US tax landscape Key changes in the TCJA include a corporate flat tax rate of 21 a top bracket for individuals from 39 6 to 37 an increase in 179 expensing to 1 million a 5 year write off period for R D expenses a new 20 deduction for pass through entities one class of Qualified Improvement Property and 100 Bonus Depreciation 168 k for new AND used property Cost Segregation and the TCJA The biggest question our clients have asked is how will the TCJA change cost segregation In general non residential real property will continue to be depreciated over 39 years and residential rental property will also continue to be depreciated over 27 5 years Under the TCJA a real property trade or business must use the Alternative Depreciation System ADS if they choose to elect out of the limitation on interest deductions This would require a 40 year class life for nonresidential real property buildings 30 year class life for residential real property and 20 year class life for qualified improvement property If the taxpayer is required to use the ADS depreciation method 168 k Bonus Depreciation is not allowed however it is allowed for property that a taxpayer elects to depreciate using ADS As mentioned previously 168 k

Bonus Depreciation was increased to 100 for new and used property through 2022 with a reduction of 20 for each year thereafter Bonus depreciation affects all property with a class life of less than 20 years thus all the 5 7 and 15 year MACRS property taxpayers accelerate using Cost Segregation will now be essentially written off in the first year for property placed into service after 9 27 2017 as long as it is the taxpayer s first use of the property This will affect New Construction Renovations as well as Acquisitions Property placed into service before that date will still have the 50 Bonus Depreciation however only on new property New Construction or Renovation Projects It is important to note that unlike the Code 179 expense allowance there is no dollar limit on the aggregated amount of Bonus Depreciation that may be claimed A short tax year does not affect the amount of Bonus Depreciation that may be claimed nor is the Bonus Deduction subject to proration based on the date during the tax year that the qualifying property was placed in service INSIGHT Taxpayers that have acquired depreciable property between September 28th 2017 and December 31st 2017 should strongly look at Cost Segregation because of the retroactive 100 Bonus Depreciation as well as the higher tax rates in 2017 Deductions are more valuable when tax rates are higher Accelerating deductions in the higher rate tax year pre 2018 tax filings will lower current tax liabilities while shifting income into future years when tax rates are lower Taxpayers that have opted not to perform a Cost Segregation in the past should now reconsider for 2017

Taxpayers that do not take advantage of this opportunity in 2017 miss the permanent tax savings that will no longer be available after tax rates fall Additionally acquisitions of real property placed in service prior to 2017 can still use Cost Segregation without amending returns under Rev Proc 2016 29 and filing a Form 3115 IRC 179 Expensing IRC 179 is expanded to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging Additionally the code was also expanded to include the following improvements to nonresidential real property after the date such property was first placed in service roofs HVAC fire protection and alarm systems and security systems Qualified Improvement Property For property placed in service after Dec 31 2017 the separate definitions of qualified leasehold improvement qualified restaurant and qualified retail improvement property are eliminated

The TCJA attempted to create a general 15 year recovery period and straight line depreciation period for this new class of property QIP however there was a technical error when the last version was signed Thus for the time being all QIP property should be depreciated over 39 year straight line until a correction is made Once they make the correction hopefully soon any tenant improvement costs taxpayers incur for property placed in service after 12 31 2017 will have a class life of 15 years under the QIP regulations vs the typical 39 year class life QIP must meet two requirements 1 it must be placed in service after the building and 2 it must be to the interior portion of a building 168 k Bonus Depreciation will not be available to QIP property which was specifically stated in the TCJA END Green Summit Engineering is a licensed Multi Disciplinary Professional Engineering Firm that specializes in innovative tax strategies and savings opportunities for CPA s government agencies and their contractors in addition to commercial customers The company was founded on the premise that customer satisfaction and quality of service is placed before all else The company is headquartered in Central Florida on Florida's Space Coast with a satellite office in Portland OR


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