The Favorable Aspects Of The PATH Act For Real Estate Tax Incentives

Written by Frances Kim. Updated Jan 8, 2016.
The_Favorable_Aspects_Of_The_PATH_Act_For_Real_Estate_Tax_Incentives.jpgOn December 18, 2015, President Obama signed into law the Protecting Americans From Tax Hikes Act (also referred to as the “PATH Act”). The PATH Act extends – in some cases permanently – a number of tax provisions that in prior years were extended on a temporary, year-by-year basis.

Several of the U.S. real estate industry’s proposals made it into the PATH Act of 2015.

For individuals and companies with real estate fixed assets, the current year tax effect is significantly beneficial, positively impacting future tax-planning opportunities around new constructions, renovations and the acquisition of real and tangible personal property.

Real Estate Tax Incentives With Permanent Extensions

  • Section 123.
    This provision permanently extends the 15-year recovery period for qualified leasehold improvements, qualified restaurant property and qualified retail improvement property.

    → Tax Incentive Opportunity: It should be noted that MACRS lives 20 years or less are bonus eligible, making this a significant prospect. There are certain criteria to consider for each of these constructs, and a cost segregation study should be performed to confirm the 15-Year treatment and to shift components of the 15-Year property to either a 7-Year or 5-Year, for the Section 1245 personal property items.
  • Section 124.
    The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.

    Tax Incentive Opportunity: The 2015 spending cap on equipment purchases is $2 million. This is the maximum amount that can be spent on equipment before the Section 179 deduction available to your company begins to be reduced on a dollar-for-dollar basis. This spending cap makes Section 179 a true “small business tax incentive.” This deduction is good on new and used equipment, as well as off-the-shelf software.

Real Estate Tax Incentives With Extensions Through 2019

  • Section 143.
    The provision extends bonus depreciation for property acquired and placed in service from 2015 through 2019 (with an additional year for certain property with a longer production period). The provision continues to allow taxpayers to elect to accelerate the use of AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2015.  

    The provision also modifies bonus depreciation to include qualified improvement property and to permit certain trees, vines and plants bearing fruit or nuts to be eligible for bonus depreciation when planted or grafted rather than when placed in service.

    Tax Incentive Opportunity: Bonus depreciation is generally taken after the Section 179 spending cap is reached and applies to MACRS property with a 20-Year or less recovery period, but only if the original use commences with the taxpayer. For long production period property, you have a recovery period of at least 10 years (or is transportation property), is subject to section 263A, with an estimated production period exceeding one year and a cost exceeding $1 million.

There are also 18 more tax provisions under the PATH Act that extend through 2016, exemplifying many opportunities for tax deductions and other incentives.

While this blog post has only scratched the surface of the extensions and tax benefits provided by the PATH Act, if you are a real estate owner, it’s highly likely that you qualify to reap positive rewards from the passing of these provisions.

Read to learn more about the PATH Act provision extensions? Speak to a tax expert at CTI.

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Topics: Cost Segregation, Property Incentives

Frances Kim

Written by Frances Kim

As one of the first CTI employees, Frances has held many key positions and has played an integral role in our diversification process. With more than 10 years in customer service and management, Frances’ proven adaptability has enabled her to manage projects for clients ranging from small start-ups to Fortune 500 companies.