3 Key Factors that Impact your Commercial Property Tax Refunds

Commercial real estate owners are constantly looking for additional revenue sources. What many don’t realize is that their next big financial boost is in one of the most overlooked places – their taxes.

What qualifies you for your next big tax break? Three factors can make a significant difference in the refund you see at the end of the tax year. Here’s where to look.

1. Property

If you are a commercial building owner with property: constructed, purchased, or remodeled after 1987 then you have a magnificent tax strategy available to you. What many property owners do not realize is how they can be taking advantage of Cost Segregation which can allow companies or individuals to increase their cash flow by accelerating depreciation deductions and deferring federal and state income taxes. All businesses should take full stock of their qualifying assets to see if there is potential for a shorter or accelerated depreciation expense. This can translate into huge returns for the business owner.

When investing in a Cost Segregation Study, it is important to work with national tax experts that can guide you through this often complex and time-consuming project. For an inexperienced professional, it can be challenging to differentiate between tangible personal property and a
building’s structural components.

Once the study is performed by a tax engineering specialist, not only will you receive a detailed analysis of all of the potential assets you are eligible for. Before your report is complete, you should also ask about special depreciable life for qualified leasehold improvements, retail and restaurant properties.

Accelerated depreciation is available for real estate assets that have been:

  • Owned for several years
  • Recently purchased
  • Newly constructed
  • Newly renovated

The best part about Cost Segregation studies is that they can be applied retroactively and prospectively.

45L: Go Green, Get Green

The purpose of 45L is to promote energy efficiency for personal dwellings. In exchange for the energy savings, the government provides developers a $2,000 tax credit per unit for reducing energy standards by 50%. The savings add up – qualifying builders and contractors can walk away with tens of thousands from this tax perk.

Many buildings are already eligible for some or all tax benefits related to improvement projects either completed within the normal course of business.

In order to receive the benefits, builders and contractors must apply and document the project before formally beginning the process of building. Some additional eligibility requirements are the following:

  • The dwelling must have reduced energy consumption by at least 50%
  • The dwelling can be a freestanding single-family home, townhouse, condo or apartment.
  • Each dwelling within an apartment or condominium complex is eligible for a separate credit
  • The building must be three stories or less
  • Dwellings that have undergone substantial renovations are also eligible
  • Qualifying properties must be sold or leased during the claimed tax year

179D: Reduce Your Carbon Footprint, Increase Your Tax Savings

The 179D tax credit offers significant tax savings related to new construction, expansions or renovations to projects. Many architects and designers are surprised to discover the potential windfall this tax savings opportunity represents. Here are a few key pointers about this significant tax deduction that benefit owners of commercial buildings of any type, including office buildings, industrial buildings, warehouses, retail spaces, multi-family homes, and apartment buildings:

  • Applicants may earn up to $1.80 per square foot on each qualifying property
  • Qualifying energy-saving systems include hot water systems, building envelope systems, HVAC systems, and interior lighting systems
  • Taxpayers can apply for the 179D tax deduction for the same building multiple times, but the amounts awarded cannot exceed $1.80 per sq./ft. over time
  • Parking garages, government-owned buildings, and hotels can also qualify

Additionally, government building projects may also be eligible for 179D. It is important to note that simply purchasing an already existing energy-efficient building will not qualify for the deduction. In order to claim it, the energy-saving systems must have been installed as part of a plan designed to reduce total energy and power costs.

2. Activities

In the world of tax credits, it is vital to clearly and thoroughly document all of your research and development expenses and activities, as they can add up to significant tax savings through the government-sponsored R&D tax credit. When the time for corporate taxes rolls around, not doing so can lead to getting less than you are eligible for, or not getting refunds or credits at all.

Ensuring that your team keeps formal and well-documented progress and project reports are the easiest way to compile this information when you go to claim any credits.

R&D: Getting Rewarded for Innovative Ideas & Practices

For the lucrative Research and Development tax credit, many companies’ qualifying business expenses are related to the investment in money and materials needed to create or improve upon a product, technique, or software application, as well as employee time.

A few R&D activities examples include, but are not limited to:

  • Coordinating research or analysis
  • Designing and developing new or improved internal software solutions
  • Creating and designing prototypes
  • Designing and creating new products, techniques or applications
  • Modifying and upgrading current products, procedures or applications
  • Reviewing hypothesis and experimentation results

3. Employees and Staff

As a business owner trying to take advantage of federal and state Research & Development tax credits, it’s also important to note that the following expenses regarding staff can also get your company a refund:

  • Employee Wages – While employee wages are only eligible if the funds are given to an employee who performs qualified R&D tasks, this can be a significant write-off.
  • Contract Research – If your company invests in a third-party contractor or consultant, the wages paid to that organization or individual are eligible for the R&D tax credit for up to 65% of the paid expense. This only applies if the organization or individual conducted an R&D qualified task, and your business must own all or a portion of the rights to the research.

Many different industries can take advantage of this credit, including manufacturing, architecture, breweries, software developers, cosmetics, agriculture, health laboratories and much more.

Your Last Stop May Not Be Your Accounting Firm

Skilled advisors that specialize in these niche areas of the tax code will be able to review any and all tax information thoroughly and ensure all steps of the process meet the needed requirements to minimize your tax liability.

Our team of tax professionals is waiting to speak with you and start the process of obtaining top-dollar savings. Contact National Tax Group at (561) 257-3436 for your free assessment today.

 

Our in house engineers and tax experts are ready to maximize your tax credits.

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