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Archives for July 2018

Tax Reform Increases Cost Segregation Benefits for Real Estate Investors

Here at Camuso CPA PLLC, cost segregation is just one of the services that we provide at our firm. For those of you who are unfamiliar with the term, cost segregation is simply the act of identifying the assets of a business, their value, and then classifying those assets in regards to the federal tax code. It can be beneficial for many businesses and investors.

While the full implications of the Tax Cuts and Jobs Act are still unraveling, a number of tax-planning opportunities have presented themselves. Here we will outline how performing cost segregation studies can lead to permanent tax savings.

Overview Of Tax Changes

The 2017 Tax Cuts and Jobs Act (TCJA) has created a number of tax-planning opportunities, some even with permanent tax savings. One of the more exciting opportunities is the permanent tax savings that may be realized by doing cost segregation on existing buildings acquired after Sept. 27, 2017, and placed in service prior to Dec. 31, 2017.

In the past, taxpayers were not allowed to take bonus depreciation on used assets, but this restriction is removed for acquisitions after Sept. 27, 2017. As a result, personal property that was acquired as part of such a building may be eligible for immediate expensing by claiming 100 percent bonus depreciation.

While the greatest opportunity may exist for facilities acquired and placed in service in late 2017, a cost segregation study can still create opportunities to accelerate deductions if a taxpayer has made built, or renovated facilities earlier in 2017 or in prior years. A cost segregation study would create a “catch up” of depreciation deductions on the 2017 tax return for those facilities placed in service in 2016 and earlier — and allow the taxpayer to benefit from the tax rate savings at higher rates.

Benefits

Bonus depreciation significantly increases the value of completing a cost segregation study. Due to the reduction of corporate tax rates in 2018, taxpayers should review their current real estate holdings to determine if a “look-back” or retroactive cost segregation study should be performed now so that they may claim missed depreciation benefits on their 2017 tax return when taxed at a higher rate.

Regardless of a taxpayer’s structure, the new tax law provides a large benefit for any owner or investor of a used property. To maximize savings, it’s critical to consider a cost segregation study to identify all qualifying assets. Savvy taxpayers will determine their ability to use the new bonus depreciation provisions and will assess when and how to implement them as a part of their overall tax strategy.

Cost segregation studies aren’t something a business can do internally, but rather need a CPA for. And not just any CPA at that. The IRS Cost Segregation Audit Techniques Guide states:

“Preparation of cost segregation studies requires knowledge of both the construction process and the tax law involving property classifications for depreciation purposes. In general, a study by a construction engineer is more reliable than one conducted by someone with no engineering or construction background. Experience in cost estimating and allocation, as well as knowledge of the applicable tax law, are other important criteria.”

Here at Camuso CPA, we do have the ability to offer cost segregation studies to our clients. If you are interested into how this service might benefit your business, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.

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As Rental Rates Rise, Charlotte South End Office Development Surges

South End is undergoing substantial office construction, showing very high demand compared to other Charlotte markets.

Average office rental rates in Midtown and South End have jumped from $24.68 per square foot, to $33.38. A 35-percent increase in 5 years, according to JLL.

South End is an area of interest due to the multi-family boom over the last ten years and the amenities that have come to the area.

Office construction in Uptown still out paces South End, but total vacancy rates are about 5 percent higher, according to JLL.

Charlotte is undergoing an intense rewrite of its development rules, which will take years to complete and will address future city planning in areas spanning from building heights to tree ordinances, urban street design to floodplains, erosion control to transportation.

The real estate forecast in the Charlotte, North Carolina area bodes well for the 2018 housing market and beyond.

Here at Camuso CPA, we do have the ability to offer cost segregation studies to our clients. If you are interested into how this service might benefit your business, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.
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How to Establish A Company Structure for Real Estate Portfolios

Any business decision you make, especially directly related to your finances and business structure, should be made with a defined cost, benefit and purpose. The focus should be on maximizing your time and money by focusing on how much money you are saving versus the time it took to save that money.

One of the first decisions an investor makes when structuring a real estate portfolio is which entity is best suited for their investment goals. There is no “one size fits all” investment strategy that works for all real estate investors. However, there are common types of entities that are most used to invest in real estate.

Limited Liability Company

A limited liability company, also known as an LLC, is typically the best entity for real estate and mortgage investors that follow a “buy and hold” strategy for their investments. When an investor buys and holds real estate property, it is considered a capital asset. In most states, including North and South Carolina, the ownership of real estate does not enact the transaction of business. This choice is typically the most beneficial for long-term investors.

Limited Partnership

To have a limited partnership, there must be one or more general and limited partners for the purpose of a business venture. Typically, the general partners are responsible for managing the investment while limited partners handle the capital invested into the partnership.

One of the advantages of this entity ability to invest funds and let the general partner manage the everyday tasks associated with the operation. In addition to the limited liability and duties that investors have, there are also tax benefits, such being able to pass through tax losses, providing greater diversification, and allowing flexibility in allocating gains and loses amount partners.

S Corporation

Flipping properties has become quite the trend in recent years and is a great way for investors to profit. When real estate properties are flipped, they then are considered an inventory and the investor is technically a dealer. However, a real estate dealer is vastly different from a real estate investor.

For real estate investors that flip properties, it is best to form an S Corporation, as this allows them to avoid self-employment or social security taxes on a portion of the profits received from flipping real estate.

Multiple Entities

In the situations that real estate investors plan to flip some properties and hold others for a longer term or are syndicating funds and will be managing properties, they should consider forming at least one S corporation and at least one LLC to own property long term. Mixing real estate investment strategies in the same entity should never be done as it can lead to problems.

Additional Company Documents

After your CPA has established your Articles of Organization and EIN to set up your companies, they will also draft your company’s operating agreement and resolutions.

An operating agreement is a key document used by LLCs because it outlines the business’ financial and functional decisions including rules, regulations and provisions. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners. Once the document is signed by the members of the limited liability company, it acts as an official contract binding them to its terms.

An operating agreement is similar in function to corporate by-laws, or analogous to a partnership agreement in multi-member LLCs. In single-member LLCs, an operating agreement is a declaration of the structure that the member has chosen for the company and sometimes used to prove in court that the LLC structure is separate from that of the individual owner and thus necessary so that the owner has documentation to prove that he or she is indeed separate from the entity itself. Most states do not require operating agreements. However, an operating agreement is highly recommended for multi-member LLCs because it structures your LLC’s finances and organization and provides rules and regulations for smooth operation.

A resolution is a written document that describes some action by the owners or managers of a company. Corporations are required by state law to make resolutions, which are routinely prepared regarding the actions of the board of directors and sometimes regarding shareholder actions. Although an LLC is not required by law to make resolutions, sometimes there are practical business reasons for an LLC resolution.

Professional CPAs can assist investors with setting these companies up by advising on your optimal structure and filing the applicable documents. Contact your local CPA to learn more.

Here at Camuso CPA, we do have the ability to offer advisory on your optimal structure and preparation services for the applicable documents along with other powerful tax planning tools to our clients.

If you are interested into how this service might benefit your business, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answer any questions you have.

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