The House Ways and Means Committee released draft tax reform legislation on November 3, 2017. The Tax Cuts and Jobs Act provides new detail on Republicans’ tax reform framework. It slashes the top corporate tax rate from 35% to 20% as well as significantly reduces tax for most individuals. Under the draft legislation, the tax rates do not go into effect until the 2018 tax year.

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When tax rates are expected to decline, the smart strategy for most taxpayers is to defer income and to accelerate deductions. For example, $1,000,000 of deductions are worth $350,000 using 2017’s 35% corporate rate but only $200,000 using the proposed 20% rate. Below are several strategies to accelerate deductions into 2017:

• Cost Segregation – Commercial buildings are depreciated slowly over 39 years. A cost segregation study carves out components from buildings that qualify for more rapid depreciation, such as land improvements and personal property.
• 179D Energy Efficient Commercial Building Deduction – Taxpayers who constructed new buildings or made improvements to existing ones between 2006 and 2016 can take an immediate deduction of up to $1.80/SF for investments in efficient lighting systems, HVAC and hot water systems, and the building envelope.
• Individual Asset Review – Individual assets are often inappropriately depreciated as part of a building, such as process-related plumbing, electrical, and ventilation systems. This study identifies assets qualifying for more rapid depreciation.
• Capital to Expense Studies – Recent tax regulations allow taxpayers to retroactively review expenditures that were capitalized but qualify as repair and maintenance expenses, such as replacing roof membranes, resealing parking lots, and replacing of HVAC components.
• Retirement Studies – Taxpayers often have ‘ghost assets’ in their fixed asset systems, such removed roofs and HVAC components. A retirement study identifies these assets, allowing taxpayers immediately deduct the remaining undepreciated basis.
• Partial Dispositions – Taxpayers who make improvements to their facilities can immediately deduct the cost of removed building components and to instantly write-off undepreciated basis amounts.
• Demolition Costs – Demolition costs for building improvements are often capitalized with the cost of a new asset but can now be immediately deducted.
• Bonus Depreciation – Bonus depreciation allows taxpayers to immediately write off from 30% to 100% of the purchase price of a new asset, but is often missed. This study identifies missed bonus opportunities.

HOW WE CAN HELP

Our team of specialists is highly experienced in performing Comprehensive Fixed Asset Reviews and have done so for both small businesses as well as Fortune 500 companies. Using our proprietary software, ICS Tax can upload assets from any depreciation system and quickly identify potential opportunities. We do this preliminary analysis for free. For more information, please contact an ICS Tax representative.

Author: Alexander Bagne, JD, CPA, MBA, CCSP. Contributing Authors: Mike Piper, LEED AP; Lacey Robb, JD, LLM; and Kevin Johnson, LEED AP