November 5, 2018

Cost Segregation & Tax Reform – Opportunities for Increased Depreciation and Expensing

With the Tax Reform legislation passed in December 2017 and effective for new and used fixed asset additions, businesses can elect a 100% depreciation deduction for qualified tangible personal property. Also, businesses can immediately expense more amounts under the new law (Section 179) up to $1 million, including nonresidential property improvements (Qualified Improvement Property). Qualified business expenses related to repairs and maintenance and disposals are current 2018 deductions as well.

Businesses can immediately expense more under the new law:

Section 179 immediate expensing is increased from $500,000 to $1 Million from 2018 to 2022 for tangible personal property and is expanded to include certain qualified nonresidential real property improvements, including qualified (interior) improvement property and energy efficient HVAC systems (Per ASHRAE Std. 90.1-2007).

Temporary 100% expensing for certain business assets first-year bonus depreciation):

100% bonus depreciation, i.e., temporary expensing effective after 9/27/17 to 12/31/2022 for tangible personal property.

Temporary expensing applies to new construction and acquisitions (used) property but limits like-kind exchanges. The tax benefit is transferable upon sale.

Existing 50% bonus depreciation for 2017, 40% for 2018 and 30% for 2019 are maintained for qualified property.

Many opportunities exist with changes to depreciation and expensing that affect businesses now!

Office Building Acquisition & Renovation Case Study

• Analysis includes automatic accounting method change, land revalue, purchase price allocation, additions, including abandonment loss, repairs & maintenance (current year deduction).

• The tax benefit is a 40% deduction of cost basis in year 1.

New Renovations Case Study

• Analysis included additions, including qualified improvement property, repairs & maintenance, business expense (current year deduction).

• The tax benefit is a 45% deduction of tax basis in year 1.

Manufacturing Building Acquisition Case Study

• Analysis includes land revalue, purchase price allocation, 100% expensing for tangible personal property.

• The tax benefit is a 38% deduction of cost basis in year 1.

Apartment Building New Construction Case Study

• Analysis includes proactive cost segregation construction consulting, new construction, including repairs & maintenance (current year deduction).

• The tax benefit is a 26% deduction of tax basis in year 1.

If you have questions about maximizing your deductions under the new tax law, please give us a call at (949) 852-1600.

Manuel Ramirez is Chairman of the Board of RJI International and was formerly associated with Price Waterhouse before joining RJI in 1990. He served as President and CEO from 1993 until 2013, before being named Chairman. Manuel was appointed by Governor Arnold Schwarzenegger as a member of the California Board of Accountancy in 2007. In January, 2010, Manuel Ramirez was elected President of the California Board of Accountancy.
Fernando Jimenez is the Chief Executive Officer and tax partner at RJI CPAs. Fernando has specific experience in corporate re-organizations, buy/sell transactions, representation before the IRS and state agencies, succession planning, operations planning and transactional analysis. Fernando can be reached at 949.852.1600 or fjimenez@rjicpas.com.

About RJI International CPAs
Established in 1980, RJI specializes in audit, accounting, corporate and interna­tional tax issues for publicly traded and privately held companies. RJI is PCAOB registered and the Southern California member firm of DFK International, one of the largest accounting networks in the world.

RJI Logo