The tax extenders bill has passed through Congress. At its core, this bill extends many tax breaks for U.S. businesses through the end of 2014. That’s right – the legislation will have zero impact on the 2015 tax season or your future fiscal planning. But it will apply retroactively to the past 12 months, so several tax breaks that expired at the end of 2013 are back in play as you file this year.
If any of these provisions are to continue into 2015, it will require additional action by Congress, since this tax extender bill expires on Dec. 31.
How does this affect construction and real estate?
While the legislation includes many provisions impacting all sorts of businesses, there are several that are primarily related to the construction and real estate industries.
These provisions include:
- Fifty percent Depreciation on “Qualified” Property
Did you have computer software or leasehold improvements in place before Jan. 1, 2015? If so, then you may be eligible for this provision included in the tax extenders bill.
Keep in mind that property only qualifies if it has a recovery period of 20 years or less and if the leaseholds were in a building you owned three years or more, unless they qualify as personal property.
- Increased Section 179 deduction
Under Section 179, taxpayers can now deduct property costs up to a certain amount. That figure is usually capped at $25,000, but with Section 179 it climbs to $500,000 as a way to stimulate spending. The tax extenders bill increased the limits for Section 179.
Now, your 2014 taxes can have a 100 percent deduction for new fixed assets up to $500,000. This deduction begins to phase out once you are over $2 million in adds in the current year, completely phased out once you hit $2.5 million in adds. Remember that not all items qualify for the Section 179 Deduction. You can only take Section 179 on assets with a life of 20 years or less.
Qualified items include, but aren’t limited to:
- Nonresidential real estate property
- Residential real estate property
- Qualified leasehold improvements
- Computer software
- Property integral to manufacturing, production, etc.
Excluded items include, but aren’t limited to:
- HVAC components
- Lodging properties
- Short-term leases
- 15-year Leasehold Improvements
One additional provision included in the tax extenders bill was 15-year Leasehold Improvements. You may be eligible if you have owned the building for at least three years and perform one of the following prior to Jan. 1, 2015:
- Qualified leasehold improvements
- Qualified restaurant building and/or improvements
- Qualified retail improvements
- Energy-efficient Building Deduction
Owners and builders of energy-efficient properties received a boost via the tax extenders bill as well. If you are eligible, you can receive up to $1.80 multiplied by your square footage for the building deducted on your 2014 tax filing.
The criteria includes:
- Property located in the U.S.
- Property used for commercial, industrial, multifamily residential or attached or detached garage spaces
- An installation of interior lighting, HVAC or building envelope
- Certification that confirms your building had improvements installed as part of a plan to reduce total annual energy and power costs by 50 percent or more when compared to a similar property
If you’d like to explore the options you have to leverage surrounding these four provisions, our Construction & Real Estate team is here to help. Quick action (before Jan. 1, 2015) may be needed to take advantage of some of them, so please reach out to your CSH advisor or request a consultation today.