The Application of the Tangible Property Regulations Implementation to Compliance Cost Segregation Services, Inc. Copyright 2015

Transcription

1 The Application of the Tangible Property Regulations Implementation to Compliance Cost Segregation Services, Inc. Copyright 2015

2 January th, 2015 Webinars Getting Started- Getting Going Cost Segregation Services, Inc. Copyright 2015

3 The operative assumption today is that someone, somewhere, has a Better Idea And the operative compulsion is to find that idea, learn it, and put it into action FAST. Jack Welch - Former CEO of GE Our goal is to share better ideas on the Implementation of the Tangible Property Regulations FAST.

4 Bio David Deshotels (dez-o-tels) Executive Vice President of Cost Segregation Services, Inc. With CSSI since Mechanical Engineering Degree. LSU 20+ years of Sales and Sales Process World s Hardest Public Affairs Job

5 Bio David Deshotels (dez-o-tels)

6 None of us is as smart as all of us. 1 st Steps Begin a Dialogue Simplify a Complex Process Time is running out Phase I Education - Diagnosis

7 Request These Resource Docs AICPA 6 Page Bullet Summary CCH - Executive Summaries Questions and Answers Index of Examples in Fed Register

8 A) AICPA Resources: Summary Chart Overview-Written Policy Template Quick Summary Chart of Final TPR Implementing the new TPR Journal of Accountancy This is the most concise summary of the regulations in the industry. Six pages in bullet form. You will want to print this and keep it as a document to refer to when reading other articles. If you only look at one, this is the one to look at. 5 Stars ***** Change to Reading View & Click to access articles Great Overview of the TPR that discusses the difficulties of implementation. Circular 230 Implications for Tax Professionals - discusses compliance risks. Written Policy Template from AICPA OMG! You just found out that your client needs a Capitalization Policy in Place starting January 1 to be eligible for the De minimis Rule Safe Harbor. This document is priceless if your client does not have this in place already. Press the button to download the Sample Written Book Capitalization Policy. 5 stars*****

9 B) Articles and Summaries IRS Releases Comprehensive Repair/ Capitalization Final Regulations Sept, 2013 CCH Tax Briefing This is a great article to start your research that compares the Temporary and Final Regulations in plain English in 11 pages. 4.5 Stars ***** Updated: Comprehensive Analysis of Final Repair / Capitalization and Proposed MACRS Disposition Regulations May, 2014 CCH Tax Briefing What s New, What s the Same, and What is Means. This article is 44 pages with a great insight of the issues and comments on the impact of the regulations. This article dives into the details with codes cited. Highly recommended. 5 Stars ***** Dec, 2014 Final Repair / Capitalization / MACRS Regulations Update This article is an 8 page summary of the regulations with the final regs highlighted and 3115 advice discussed. 5 stars *****

10 Research How to Implement the TPRs

11 Journal of Accountancy Implementing the New Tangible Property Regulations

12 Journal of Accountancy Implementing the New Tangible Property Regulations These rules will affect every TP that uses Tangible Property in its business The rules are all-encompassing and complex TP may need to devise new collection procedures to capture the necessary data to implement these regulations.

13 Journal of Accountancy Implementing the New Tangible Property Regulations Circular 230 may present challenges to practitioners in signing tax returns of clients that have not implemented the final regulations. Due to the challenges of the regulations, waiting to address these issues until completing the 2014 tax return is ill-advised.

14 Tangible Property Regulations Resource Guidance on Deductions & Capitalization

15 Today s Agenda Questions This is complicated. Why? How Do I Explain this to my Clients. First Things that I need to do. Lottery Ticket Winners? Late Partial Disposition Use It of Lose It Unintended Consequences of a Building being a UOP. Applying the Improvement Standards. Questions to Ask Every building owner. How Can a Cost Segregation Specialist make your life easier and your client happier.

16 Today s Agenda Need to Know Overview of the Regulations- Resource Documents. Greatest Impact to Tax Professionals. How to: Applying Partial Disposition Election. Improvement Standards Basics for UOP. Safe Harbors for your clients. Cost Segregation and how it helps in applying TPR.

17 Capitalize or Expense? Welcome to the Tangible Property Regs General framework for distinguishing Capital Expenditures from: Supplies Repairs Maintenance

18 Capitalize or Expense? Welcome to the Tangible Property Regs We have to capitalize everything unless there is an exemption. Safe Harbors are the exemptions.

19 Capitalize or Expense? Unique Adoption Method This is Why In the Past Starting Date Mandate to follow new Regulations. TPR Starting Date Jan 1,14 Mandate to follow new Regulations. Require permission to adopt new Regs. A TP must secure IRS consent to voluntarily change an accounting method. Code Sec.446(e) Reg (e)(2)(i)

20 Capitalize or Expense? Unique Adoption Method New Rev Proc Issued Friday & A taxpayer must secure the IRS s consent before changing its accounting method. To obtain consent, taxpayers file Even when the IRS s consent is not required, a taxpayer must file Form 3115.

21 Capitalize or Expense? Unique Adoption Method New Rev Proc Issued Friday Rev Proc Procedures for applying for Automatic Changes in accounting method. Changes that have an assigned number. Automatically Granted. Rev Proc List of Automatic Changes.

22 Capitalize or Expense? Unique Adoption Method TPR Multiple Methods of Adoption Just do it going forward (6 annual elections) Partial Asset Disposition Small Tax Payer Safe Harbor De minimis Safe Harbor Request Permission going forward (3115 s) Repairs and Maint., Materials and Supplies, Unit of Property, Improvement Standards, Acquisition of Property, Removal Costs Adjustments Looking Back (3115 s w/ 481(a)) Late Partial Asset Disposition Election, Repairs and Maint., Removal Cost, Whole Disposition

23 Capitalize or Expense? Unique Adoption Method TPR Multiple Methods of Adoption Those Requiring a 3115 Form 3115 last updated in 2009 Attachments 27 method codes 82 Specific citations 481(a) adjustments per building Concurrent 3115s - Which can be combined #184, #186, #192 Create Templates for 3115s New 3115s???? Rev Proc &

24 3115 Concurrent Methods 184,186,192 on same 3115 Method Codes to accomplish: Repairs and Maintenance (R & M), #184, with a citation to regulation Section (R) Material and Supplies (M & S), #186 and/or #187, with a citation to (R) Unit of Property, #184, with a citation to 1.263(a)-3(e) (R) Betterment, Adaption, Restoration, (the BAR Test rules), #184 with a citation to the particular part of 1.263(a)-3(g), -3(j), - 3(l), -3(k), as applicable (R). Routine Maintenance Safe Harbor, #184, with a citation to 1.263(a)-3(i) (R if you want to take) Acquisition of property, #192, with a citation to (1.263(a)-2) (R)

25 Tangible Property Regulations Resource Guidance on Deductions & Capitalization

26 TPR IMPLEMENTATION NEEDS CPA FIRMS CPA: EXPERT AND TRAINING (CPE) CSSI Analysis Qualification Query Provide Tax Depreciation Schedules - No Cost Estimate Building Assets No Building Assets Determine Application Functions: CPA and CSSI Engage Client - Engagement Letters, Cost Segregation ADMIN: CPA ECONOMIC & ACCOUNTING All Clients: Capitalization Policy (every year) Adopting: 3115s Building Assets No Building Assets/1040 s Partial Asset Disposition Material & Supplies Expense/Cap Decision basis Materials & Supplies Expense/Cap Decision basis COST SEGREGATION STUDY SOURCE DOCUMENT BUILDING SYSTEMS AND PARTIAL DISPOSITION

27 You Need to: Make Your Clients Aware Before it s TOO LATE Advantage to write off Late Partial Dispositions. Use It or Lose it Deadlines in tax year 2014 Need a Capitalization Policy for tangible property less than $500 per item or invoice by January 1, 2014

28 Tangible Property Regulations General Framework Dispositions Materials and Supplies Cost to Improve Tangible Property Cost to Acquire Tangible Property

29 Dispositions Benefit to your Client Includes: Sale or Exchange Retirement Physical Abandonment Destruction Transfer to supplies or scrap Involuntary conversion Retirement of a structural component of (or improvement to) a building. Section

30 Dispositions Benefit to your Client Ability to write off assets that are no longer in use with Partial Disposition Election Renovations Remodels Replacements Abandoned in Place Common Items Roofs, HVAC, Electrical

31 Dispositions Catch Up Provision Know the Value of what went into the Dumpster. Relative to the value that your client paid for the building. Disposed of as a Partial Disposition. Write down to the basis of the property in year Looking for Improvements or Repairs on Depreciation Schedule.

32 Dispositions Example: A business owner buys 20 year old building and replaces the Roof after 5 years of ownership. Old Regs: 5 years 39 years Cost of Roof Hidden in Building Asset Basis Roof 2 added asset

33 Dispositions Example: A business owner buys 20 year old building and replaces the Roof after 5 years of ownership. New Regs: 5 years 39 years Original Building Asset New Roof Asset

34 Dispositions Benefit to your Client Partial Disposition Election 1.168(i)-8(d)(2) In 2014 tax year for prior years: Requires Change in Accounting Method Form 3115 and 481(a) adjustment to catch up (196). Effective Jan and future years: The election is made in the taxable year that the disposition occurs.

35 Dispositions Example: $1.5 m Nursing Home with major renovations $91k in assets removed = Asset Valuation Study $31k in cash flow Basis Write Down Tax Savings at Sale 5 yr. property (35-41%) recaptured at Capital Gains Rate (20%)

36 Dispositions Role of Cost Segregation

37 Dispositions Role of Cost Segregation Example: Asset Valuation - $53k Cost Segregation on Renovation - $126k Year of Opt In Matters 2014 Get Both 2015 No Past Disposition: Lose $53K 2014

38 Dispositions Tax Professionals Ask #1 Question How do I get The Number? IRS says to use: Reasonable Method Cost Segregation is a Certain Method 2014

39 Dispositions Reasonable Methods Discounting the cost of the replacement asset to its placed-in-service year cost using the Producer Price Index (PPI) (changed from CPI) Restoration Only Pro rata Allocation. Both Methods need a valuation of the Unit of Property affected. 2014

40 Dispositions Reasonable Methods A Study allocating the cost of the asset to its individual components. This provides the proper valuation of the affected building assets. Cost Segregation is a certain method.

41 Dispositions Cost Segregation Method Labor to Remove Materials Disposal Fees Identify Items Removed Quantify Items Value Items Determine the remaining basis Write Down of Basis is a permanent tax reduction at the time of sale. Personal Property Sec % Real Property Section % Capital Gains 20%

42 Dispositions Cost Segregation Method Building Plans Cost Detail Review IRS accepted Cost Allocation Methods Defined Engineering-based Methodology The Study: Report Form meets IRS Report Criteria Defendable

43 Dispositions Asset Valuation Study Works for all applications: Large Renovations Complicated Remodels Retired Components and Partial Disposition

44 Solution: It s the Process Find all clients with depreciation on building assets. Qualify clients with estimated Disposition and Cost Segregation economic needs. Get an Engineering-based Study that meets the IRS s guideline. Apply the Change in Accounting Method Form 3115 & 481(a) with study results to the client s return.

45 Solution: It s the Process Partnering Qualification and Analysis Client Contact and Proposal Execution

46 Solution: It s the Process Ease of Compliance CPA: 1-2 hrs per client Timely completion Additional Revenue $1,000-$3,000 per client Client Satisfaction 100%: Grateful for effort to save taxes

47 Tangible Property Regulations General Framework Dispositions Materials and Supplies Cost to Improve Tangible Property Cost to Acquire Tangible Property

48 Cost to Improve Tangible Property Improvement Standards Improvement Standards Deductible Repair Capitalized Improvement BAR TEST

49 Cost to Improve Tangible Property Improvement Standards Betterments BAR TEST Adaptations Restorations Capitalize Improvements

50 Cost to Improve Tangible Property Improvement Standards Capitalize Amounts paid for new building or improvements 1.263(a)-3. - that increase value of property - bring property to new or different use - return of original condition Expense... Amounts paid for incidental repairs and maintenance of property (a)-1. Refresh - keeps in ordinary operating condition

51 Cost to Improve Tangible Property A Betterment is an expenditure that - Capitalize Corrects a Material Defect existing prior to the taxpayer s acquisition of the UOP or one that arose during the production of the UOP at acquisition or production; Is a Material Addition ( physical enlargement, expansion or extension) to the UOP; Is a Material Increase in capacity, strength, productivity, efficiency, quality, or output of the UOP. Betterment (a)-3(h)

52 Cost to Improve Tangible Property Capitalize Lessee Improvements: A lessee improvement constitutes a separate Unit of Property from the leased property being improved, and must be capitalized. The new property interest is separate and identifiable from the lessor s interest in the underlying property.

53 Cost to Improve Tangible Property Capitalize Must compare the condition of the property after the expenditure to the condition prior to the circumstances that necessitated the expenditure. Final regs specify the comparison rule only applies to wear, tear and damage that occurs during the use of the property. Compare to condition after last expense or original service date.

54 Cost to Improve Tangible Property Capitalize No bright line tests for material increase and additions. Material Increase Reg Example 21 50% reduction in energy and power cost from new insulation. Not a Material Increase Reg Example 20 Indicates 10% efficiency and 20% additional capacity from changing 2 of 10 roof mounted HVAC units

55 Cost to Improve Tangible Property Capitalize Adapting to New or Different Use Change not consistent: With the taxpayer s intended use With the Unit of Property at the time originally placed in service. (based on facts and circumstances) o Example: Drug Store to Walk in Medical Clinic. o Example: Hospital changes to Outpatient Surgery

56 Cost to Improve Tangible Property Capitalize Returns the UOP to its ordinarily efficient operating condition if the property has deteriorated to a state of disrepair and no longer functional. Results in rebuilding the property to like-new condition after the end of its class life. Is for the replacement of a part or combination of parts that comprise a major component or a substantial structural part of a UOP that perform a discreet and critical function.

57 Cost to Improve Tangible Property Capitalize Major Component Parts that perform a discrete and critical function in operation of UOP. Substantial Structural Part - A large portion of the physical structure of the UOP. Must consider all facts and circumstances - both quantitative & qualitative. Not just the cost, but the size, type, function etc.

58 Cost to Improve Tangible Property Capitalize Not An Improvement Examples in Regs Roof Membrane Only (Reg Ex.15) Part vs. Whole Major Structural Component 100/300 Windows (25 % surface area)(reg Ex.25) Part vs. Whole Major Structural Component 3/10 Roof HVAC Units 8/20 Sinks (Reg Ex.18) 3 roof units vs. HVAC Building System 8 sinks vs. Plumbing Building System (Reg Ex.23)

59 Cost to Improve Tangible Property Improvement Examples in Regs Entire Roof System Capitalize (Reg Ex.14) Major Portion of Building Structural Component 200/300 Windows (Reg Ex.26) Major Portion of Building Structural Component One Chiller in HVAC System (Reg Ex.17) Major Component of HVAC Building System All Sinks Major Portion of Plumbing Building System (Reg Ex.22)

60 Cost to Improve Tangible Property Capitalize Not a Restoration 1 of 3 furnaces 30% of electrical wiring 10% of sq. ft. of flooring Restoration Entire Sprinkler System All Wiring in Building 40% of sq. ft. of flooring

61 Cost to Improve Tangible Property Capitalize Major Components 40% or less May Not be a Restoration. (Ex.18,21,23,25) 66% or more May be a Restoration. Substantial Structural Parts 25% Replacement May Not be a Restoration.(Ex. 30) 30% Replacement May be a Restoration. (Ex. 27) since it is a large portion of a structural part.

62 Cost to Improve Tangible Property Refresh Expense Capitalization is not needed. Does not materially increase capacity, productivity, efficiency, strength, quality or output of the building s structure. A refresh keeps the building structure and building systems in ordinary efficient operating condition that is necessary to continue to attract customers.

63 Cost to Improve Tangible Property Capitalize or Expense of an Invoice Can I expense this invoice? Betterment- Adaptation- Restoration? What do I compare it to? The Building?

64 Cost to Improve Tangible Property Compare Invoice to Building Systems Building Structural Components

65 Cost to Improve Tangible Property Building Systems 1. Building and Structural Components 2. HVAC 3. Fire Protection & Alarm 4. Elevators/Escalators 5. Electrical 6. Plumbing 7. Gas Distribution 8. Security Systems 9. Any other systems identified in published guidance

66 Cost to Improve Tangible Property Building Systems Building & Structural Components, HVAC Fire Protection Sys. Elevators/Escalators Electrical, Plumbing Gas Distribution Security Sys. Other Building Structural Components* Roof Windows Exterior Framing Insulation Doors Foundation * - Discrete and Critical Function

67 Cost to Improve Tangible Property HVAC Compressor Instruments Blower Ducts/Vents

68 Cost to Improve Tangible Property Compare future Invoices to: Building Systems valuation Structural Components valuation Major Components valuation Cost of Items HVAC %

69 Cost Segregation Expertise HD Study Building Elements/Units of Property Building Components $ 6.00 Cabinets / Millwork $ 20, Moldings $ 8, Wood Paneling $ 2, Flooring - Vinyl Tile $ Flooring - Carpet $ 9, Window Treatments $ Air Curtain $ 1, Building Signage $ Specialty Electrical - Kitchen Equip. $ 15, Communication / Data $ 32, Specialty Plumbing - Cooler Equip. / Kitchen Sinks $ 10, Security / Exterior Lighting $ 9, FRP Wall Panels $ 1, Rear Entry Canopy $ 20, Interior Overhead Doors - Security $ 21, Slatwall / Pegboard Paneling $ 9, Surveillance System $ 4, Interior Wood Trellis Systems $ 6, Liner Panels $ 109, Paging System $ 1, Windmill $ 17, Exhaust Hood $ 11, Fire Extinguishers $ 1, Cooler $ 10, Movable Storage Units $ 30, Site Work / Improvements $ 5,464, Water Well $ 19, Site Drainage $ 48, Parking Lot $ 138, Exterior Signage Structure $ 17, Parking Lot Striping / Barriers $ 23, Sidewalks $ Landscaping $ 68, Security Lighting Poles $ 6, Aggregate Base Paved Area $ 192, Exterior Fencing / Decking $ 31, Retaining Walls $ 16, Fabricated Steel - Bollards $ 2, Patio Concrete $ 10, Exterior Wood Trellis Systems $ 2, Gazebo $ 4, Building Structure $ 8.00 Structural Components $ 559, Roofing Systems $ 66, Foundations $ 234, HVAC $ 179, Electrical $ 242, Plumbing $ 68, Masonry $ 40, Doors & Windows $ 17, Insulation $ 43, Gas Distribution $ 4, Drywall $ 13, Painting $ 23, Fire Protection & Alarm $ 15, Gutters & Downspouts $ 12,335.58

70 Cost to Improve Tangible Property Depreciation of UOP Improvement Standards Each Building is a Unit of Property Or Each Building s Property by Class Life 5 yr. Property 7 yr. Property 15 yr. Property 39 (27.5) yr. Property BAR Test

71 Cost to Improve Tangible Property Depreciation of UOP Each Building is a Unit of Property Or Each Building s Property by Class Life 5 yr. Property 7 yr. Property 15 yr. Property 39 (27.5) yr. Property Multiple Building Sites need basis assigned to: Each Building Land Improvements Parking / Ext. Lighting Landscaping

72 Cost to Improve Tangible Property Each Building is a UOP

73 Challenges to the Tax Professional Clients with a Building Building Description Name of Building Address How many stories Type Construction Business Purpose or Building Use Occupied / Leased Approximate Square Footage How many Suites or Lease Hold Spaces Pictures or Building Describe Parking Areas Separately Improvements Listed Separately

74 Tangible Property Regulations General Framework Dispositions Materials and Supplies Cost to Improve Tangible Property Cost to Acquire Tangible Property

75 Safe Harbor Issues

76 Materials and Supplies UOP with a useful life Method Change # Incidental < or = 12 months -write off at time of purchase 187 Non-Incidental > 12 months -w/o when used or consumed 186 Fuel, lubricants, water, & similar items Costing $200 or less (up from $100 in temp regs). Defined as tangible property used in taxpayer's business that is not inventory and A component acquired to maintain, repair, or improve a UOP that is not acquired as part of any single UOP. Reg Sec (a)

77 Safe Harbors Allows expensing of amounts paid to acquire or produce a unit of real or personal property, including qualified materials and supplies. Calculated on an Invoice or Item level. Elected annually by including a statement with the taxpayer s tax return for the year elected. Having an Applicable Financial Statement (AFS) makes a big difference on the limits that can be expensed.

78 Cost to Acquire Tangible Property De minimis Safe Harbor With AFS - $5,000 per invoice (or per item as substantiated by invoice) Written policy in place at beginning of year. Policy to expense for amounts under a certain dollar amount or property with an economic useful life of 12 months or less. Treats the amounts as expenses on the AFS as well. Without AFS: - $500 per invoice (or per item as substantiated by invoice) Policy in place at beginning of year (written policy not required) for amounts under certain dollar amounts or property with an economic useful life of 12 months or less. **Action Item: $5000 with AFS - Must have written expensing policies in place at the beginning of the tax year.

79 AICPA Capitalization Policy 2014

80 Cost to Improve Tangible Property Routine Maintenance Safe Harbor Expenses Deductible if you reasonably expect (at time UOP is placed in service) to perform more than once during the 10 year period from when the building system was placed in service. Safe Harbor does not apply to Betterments, Adaptations, or some Restorations (see Reg (a)-3(i)(3)). Consider-recurring nature of activity, industry practice, manufacturer s recommendations, and TP s business needs. Requires submission of Form 3115 to adopt. 2014

81 Cost to Improve Tangible Property Small Taxpayer Safe Harbor for Buildings Can elect not to apply improvement rules to eligible buildings if the annual amount spent is less than $10,000 or 2% of unadjusted basis on a building-by- building basis. May be written off as repairs. Example: $300k building = $6,000 limit If limit is exceeded, does not apply to any amounts 2014

82 Challenges to the Tax Professional Clients with a Building Building Description Name of Building Address How many stories Type Construction Business Purpose or Building Use Occupied / Leased Approximate Square Footage How many Suites or Lease Hold Spaces Pictures or Building Describe Parking Areas Separately Improvements Listed Separately

83 Challenges to the Tax Professional Clients with a Building Identify all clients that have a building Ask these questions: Can you provide a Written Description of the Buildings and Parking Areas? Description used to identify UOP on Renovations, Remodels, Replacement? Late Partial Disposition Election Candidate Write Down Remaining Basis of what was thrown away and is still on the books Requires a 3115 Routine Maintenance performed more than once every 10 years? Requires a 3115 Is the building cost basis above or below $1 million? Small Taxpayer Safe Harbor for those below ($10k or < 2%) Track expenses

84 Challenges to the Tax Professional Clients with a Building Reconfigure the depreciation schedule? - Multiple Buildings on site requires multiple UOP Breakout of cost basis Reconfigure Depreciation Schedule Assign a cost basis for each building - UOP Assign a cost basis for Parking Lot/Land Improvements Track expenses on a per building basis educate clients to comply Apply Improvement Standards to invoices? Repair or an Improvement? BAR Test Restoration Betterment, Adaptation, Compare cost of invoice to Building Systems, Major Component, Substantial Structural Part Know the starting basis of each of these building systems, major components. Cost segregation favorable to client?

85 3115 Concurrent Methods Late Partial Disposition / Cost Seg Method codes to accomplish: Cost Segregation Impermissible to Permissible, #07 Partial Asset Disposition Election, #196 Whole Asset Disposition Building UOP #205 Equipment UOP #206 Removal Cost, #21 Send to National Office in Washington, DC All others sent to Ogden, Utah

86 Solution: It s the Process Find all clients with depreciation on building assets. Qualify clients with estimated Disposition and Cost Segregation economic needs. Get an Engineering-based Study that meets the IRS s guideline. Apply the Change in Accounting Method Form 3115 with method codes & 481(a) adjustment with study results to the client s return.

87 3115 Concurrent Methods 184,186,192 on same 3115 Method Codes to accomplish: Repairs and Maintenance (R & M), #184, with a citation to regulation Section (R) Material and Supplies (M & S), #186 and/or #187, with a citation to (R) Unit of Property, #184, with a citation to 1.263(a)-3(e) (R) Betterment, Adaption, Restoration, (the BAR Test rules), #184 with a citation to the particular part of 1.263(a)-3(g), -3(j), - 3(l), -3(k), as applicable (R). Routine Maintenance Safe Harbor, #184, with a citation to 1.263(a)-3(i) (R if you want to take) Acquisition of property, #192, with a citation to (1.263(a)-2) (R)

88 3115 Small Taxpayer Short Form

89 Implementation Compliance Steps Administrative: Dear Client Letter Start compliance discussions Resources to file CAM Form 3115 & 481(a) Capitalization Policy in Place AICPA Template. Routine Maintenance Safe Harbor Form De minimis Safe Harbor and Materials and Supply.

90 Implementation Compliance Steps Administrative: Economic and Accounting: Cost Segregation Preliminary Analysis. Late Partial Disposition study for 2014 tax year deadline. Units of Properties Defined on Dep. Schedule. Track Expenses per Building Define Building Systems for each building Partner with Cost Segregation Firm (CSSI)

91 Recommendations: Take Action List CPA Firm business issues: How are you going to get paid? Separate engagement letter? What are you going to charge? Know what you have to do for each client. Rank clients (Real Estate, Manuf., Rentals, 1040s) Who is going to do the work? Process/Cultural Adopt. Education, Process, Resources, Production, QC. Delivery Schedule. Extensions? Done before tax season?

92 Journal of Accountancy Article Clearly, the new repair regulations pose considerable compliance risks both for CPAs and the businesses they advise. Journal of Accountancy Feb 2014 Implementing the New Tangible Property Regulations Christian Wood. J.D.

93 CSSI can Help Challenges for the CPA Solutions provided by CSSI Late Partial Dispositions Use It or Lose It Parts of Capitalized Improvements are now Deductible Repairs Units of Property Assign Basis to Buildings Improvement Standard Decision Clarity with Cost Segregation Study Switch clients to a Cost Segregation Depreciation Model when Appropriate

94 Solution: It s the Process Partnering Qualification and Analysis Client Contact and Proposal Execution

95 Solution: It s the Process Ease of Compliance CPA: 1-2 hrs per client Timely completion Additional Revenue $1,000-$3,000 per client Client Satisfaction 100%: Grateful for effort to save taxes

96 Explaining Cost Segregation The process of analyzing and identifying commercial building components that are eligible for accelerated depreciation providing a significant tax benefit for the taxpayer. Personal Property is Segregated from Real Property $50k to $80k per $1 Million in Cost Works on $250k buildings

97 Explaining Cost Segregation Straight-Line Hamburger Cost Segregation 2 All Beef Patties Special Sauce Lettuce Cheese Pickles Onions on a Sesame Seed Bun

98 Explaining Cost Segregation Straight-Line Cost Segregation Looks at the building as a Whole Structural Building Components Depreciated over 39yrs (27.5yrs) Real Property Only Identifies Parts and Pieces of the building Non-Structural Building Components Depreciated over 5, 7 & 15 years Personal Property & Real Property

99 Explaining Cost Segregation 5 & 7 Year Property Decorative building elements, wallpaper Specialty electrical, plumbing, mechanical Carpet, flooring, crown moldings, Built In cabinets, counter tops, millwork Security, special lighting, window treatments Communications, cable Kitchen fixtures, refrigeration equipment 15 Year Property Landscaping, paving, fencing, site utilities, parking lot, signage, sidewalks, sprinklers, walkways

100 Explaining Cost Segregation The Applications Current Buildings Acquired after 1986 New Construction New Acquisitions Renovations / Leasehold Improvements

101 Explaining Cost Segregation An Engineering-Based Study of the building for tax purposes. Produce a Report that the Tax Professional submits with the return. Automatically accepted by IRS.

102 Explaining Cost Segregation Types of Commercial Buildings Apartment Complex, Condominium Auto Dealership Shopping Mall, Strip Center Restaurant Hotel/Motel Medical/Dental/Veterinary Facilities/Surgical Nursing Homes/Assisted Living Office Buildings, Banks Retail Chains/Franchises/Leasehold Space Self Storage, Mini Warehouses Supermarkets, Furniture Stores Etc

103 Information Needed To Run Preliminary Analysis Depreciation Schedule is best What type of Building? What did they pay for the building? (without the land) When did they purchase it? Have there been any major renovations or remodels?

104 Cost Segregation vs. Straight-Line Depreciation

105 Cost Segregation vs. Straight-Line Depreciation Eighth Wonder of the World

106 Financial Results of Cost Segregation Project #9501 Building Cost $ 250,176 (with-out land) Tax Savings Benefit: $32,845 Study Fee Before Tax: $2,420 Study Fee After Tax: $1,549 ROI: 21:1

107 Financial Results of Cost Segregation Building Cost $324,000 (with-out land) Tax Savings Benefit: $52,856 Study Fee Before Tax: $3,400 Study Fee After Tax: $2,176 ROI: 24:1 2014

108 Financial Results of Cost Segregation Project # 9503 Building Cost $5,246,908 (with-out land) Tax Savings Benefit: $312,687 Study Fee Before Tax: $14,900 Study Fee After Tax: $9,536 ROI: 33:1

109 Thank You Thanks for attending the Webinar, For insights into your specific questions, please Contact: Eric Christenson And Request: TPR Resource Implementation Guide Phases of Implementation Checklist Method Codes List RP Presented by David Deshotels Jan 20 and 21 st, 2015