Specialty Tax Strategy & CARES Act Updates Top 5 Real Estate Pro Tips! 1. Cost Segregation & Bonus Depreciation 2. Improvements & Disposition Credits 3. Energy Tax Credits & Incentives (179D/45L) 4. Construction Tax Planning & Insurance Appraisals 5. CARES Act & Advanced Tax Exchange Strategies (Opportunity Zones, Historic, Energy Tax Credit Investing) Presented by: Michael F. D’Onofrio
Your Presenter – Engineering & Specialty Tax Credit Expertise Michael F. D’Onofrio is Managing Director of Engineered Tax Services (ETS) the country’s largest specialty tax engineering firm focused on wealth preservation, tax mitigation and tax credits utilizing IRS-approved strategies and an innovative, comprehensive approach with Cost Segregation, Renewable Energy Tax Incentives, Historic Tax Credits and new Opportunity Zones for companies and property owners to help maximize all Federal, State and Local incentives, credits, rebates available. Michael lives in Charlotte, NC and works nationally delivering specialized engineering tax studies to local and national companies, investment firms, family offices and private equity investors. ETS has a team of over 100+ professionals in 20 offices nationally with HQ in West Palm Beach, Florida. Michael F. D’Onofrio | Managing Director MDonofrio@EngineeredTaxServices.com Direct: 561-762-0044 www.EngineeredTaxServices.com
Top 5 Real Estate Pro Tips! Cost Seg & Bonus Depreciation Improvements & Dispositions Energy Tax Credits Construction Tax Planning Opportunity Zone & Tax Exchange
Federal COVID-19 Acts to Date • Coronavirus Preparedness & Response Supplemental Appropriations Act (March 4) – $8.3 billion emergency funding related to developing a vaccine, medical supplies, grants for public health agencies, etc. • Families First Coronavirus Response Act (March 18) – $192 billion Free coronavirus testing, paid leave, enhanced unemployment insurance, expanded food security initiatives, etc. • Coronavirus Aid, Relief, and Economic Security Act “CARES Act” (March 26) – $1.8 trillion Added tax provisions, small business loans, mortgage forbearance, etc. • Paycheck Protection Program and Health Care Enhancement Act (April 24) – $483 billion Increased Paycheck Protection Program authority, disaster loan funding and added funds for health care response
Tax Provisions of CARES Act • Families First Coronavirus Response Act – Mandates two weeks of paid sick leave for those impacted by COVID-19. – Expands the Family and Medical Leave Act (FMLA) to provide up to 10 weeks of paid leave to care for children under 18 whose schools/childcare facilities are closed. – Offers two refundable employer payroll tax credits to offset wage costs. – Does not apply to private business of 500 or more employees.
Tax Provisions of CARES Act • Business Provisions – Employee retention tax credit: Refundable payroll tax credit for 50% of wages (up to $10,000) paid by employers to employees during crisis. – Employer Payroll Tax Deferral: Delay of payment of employer payroll taxes from enactment to 12/31/20 – Net Operating Loss (NOL) relief: 5-year carryback • Individual Tax Assistance – Recovery Rebates: $1,200 (single filers); $2,400 (married couples); and $500 (per child). Phases out for single filers earning over $75,000 and married couples earning over $150,000.
Tax Provisions of CARES Act • IRS Extended tax filing relief to July 15 • 2019 tax returns with no interest or penalties • First and second quarter estimated payments • 1031 Like-Kind Exchanges (for deadlines between April 1 and July 15) • NMHC seeking additional relief • Opportunity Zone investments (for deadlines between April 1 and July 15) Most Important for Real Estate… New - Increased Loss Limitations -Ability to use more tax losses / NOLs now! New – 5yr Loss Carry Back Provision Ability to go back 5yrs in tax returns and possibly generate immediate tax $ refunds!
Small Business Loans • $670 billion ($349 billion + $321 billion) for loans to small businesses (with 500 or fewer employees, full-time/part-time) – Up to 250% of average monthly payroll, maximum $10,000,000 – Loan is forgivable if: • Employer keeps employees on payroll • Over 8 weeks spends loan on payroll, rent, mortgages, utility payments – Effective immediately through SBA lenders – No fees, qualifying requires no collateral, no personal guarantee and borrower certifies they are impacted by COVID-19 – Retroactive to 2/15/20 – $10 billion for emergency grants up to $10,000 • NMHC is urging Treasury / SBA to clarify that all multifamily businesses with 500 or fewer employees qualify. • SBA guidance is extremely unclear with respect to qualification. • SBA can address this issue administratively, but NMHC is also asking Congress to act should SBA not do so.
Federal Reserve Loans • Federal Reserve established Main Street Lending Program • Two facilities: Main Street New Loan Facility (MSNLF) Main Street Expanded Loan Facility (MSELF) • Goal to assist small and medium-sized businesses with $600 billion in loans. • Available to businesses with 10,000 or fewer employees or 2019 revenue of $2.5 billion or less. • Minimum loan of $1 million. • Loan limit lesser of $25 million or 4 times EBITDA when added to existing but undrawn debt (MSNLF); and $150 million, 30 percent of existing but undrawn debt, or 6 times EBITDA (MSELF). • Loans have 4-year maturity with principal and interest deferred for one year.
Future Stimulus & Legislative Outlook? • COVID-19 4.0 package on agenda now… • May 12 House Democrats released massive stimulus proposal dubbed Health and Economic Recovery Omnibus Emergency Solutions Act or HEROES Act for short. • Proposal massive not only in its estimated $3 trillion cost but also in its size, with more than 1,800 pages included in the bill. • Provisions calling for another round of stimulus payments, extended unemployment benefits and other direct financial assistance. • HEROES Act would eliminate the limitation on itemized deductions for state and local taxes (SALT) for the 2020 and 2021 tax years. – interesting provision revisits hard-fought issue for many high-tax states May take longer to move bill with debates on state aid and deficit impact
PRO TIP #1 Cost Segregation & 100% Bonus Depreciation Presented by: Michael F. D’Onofrio
New Depreciation Rules 100% Bonus Depreciation Section 179 Expensing Rules ✓ Cost Segregation identifies and accelerates depreciation on 5-year and 15-year personal property and what qualifies for Bonus ✓ Bonus Depreciation increased to 100% also applies to Purchases of Existing Buildings in addition to new construction and improvements ✓ Section 179 Expanded ability to expense immediately up to $1 Million also including new Roofs, HVAC, Security Systems
What is Cost Seg? Cost Segregation Study methodically reviews all property assets to properly identify and reclassify: Real Property (depreciated over 27.5 or 39 years) Personal Property (depreciated over 5 or 15 years) - All Personal Property assets now also qualifies for new 100% Bonus Deprecation! How is this done? Yes, the IRS allows it! • Invoices, Drawings, Blueprints reviewed and site visit conducted to analyze building as part of detailed Engineering-based Cost Segregation Study • Can also go back Retroactively 5-10+ years ! • Don’t forget Improvements and Dispositions! • Generally Requires the filing Form 3115 is easy
TIMING ILLUSTRATION
PRO TIP #2 Maximize Improvements Renovations & Value-Add Capturing Dispositions Presented by: Michael F. D’Onofrio
Wha t Are Dispositions? Capturing Tax Value of a Removed Building Asset Creates an Immediate Tax Deduction! Typically existing improvements (Lights, HVAC, Roof, Windows, etc) remain on long-term 27.5 or 39-year depreciation schedule and available for Immediate Tax Write-Off! CPAs call it (PAD) Partial Asset Disposition ETS maximizes Improvements with a Cost Seg Study by capturing any Abandonment and Dispositions for serious increased cash benefits and Enhanced ROI!
PRO TIP #3 Capture All Energy Tax Incentives & Credits Federal - State - Local Utility Presented by: Michael F. D’Onofrio
Energy Tax Credits PASSED: 2019 Extender Bill 179D & 45L Energy Tax Credits Retroactive for all new construction and renovations completed 2018, 2019, 2020!
179D Energy Tax Deductions What is 179D? • Incentivize Energy Efficient Green Building • New Construction or Renovations • All Commercial, Retail, Industrial Properties • Residential and Multifamily 4+ Stories • Up to $1.80 per sf Bonus Tax Deduction • For new Lighting, HVAC, Roof, Windows • Placed in Service Dates: 2006 – 2020
45L Energy Tax Credit What is 45L? • Incentivize Energy Efficient Green Building • New Construction or Renovations • Residential and Multifamily 3 Stories and Less • $2,000 Tax Credit per unit • For new Lighting, HVAC, Roof, Windows • Placed in Service Dates: 2006 – 2020
PRO TIP #4 Insurance Replacement Appraisals Save $ on Premiums Presented by: Michael F. D’Onofrio
PRO TIP #5 Understand Strategies in New “CARES Act” COVID-19 Stimulus Plan of 3/2020 Presented by: Michael F. D’Onofrio
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