Going Green Pays Green Part 2

Nicole M. Doeschot, CPA, Tax Associate

In an effort to save both money and the environment, companies are running on a much more “green” philosophy in the way they do business.  One of the most common methods is by constructing green buildings. 

While sometimes going green can have initial additional costs, a provision in the Energy Policy Act of 2005 is intended to offset some of the costs by possibly allowing taxpayers to take an immediate expense of the cost of property that would normally be depreciated over as many as 39 years. 

The energy efficient commercial buildings deduction generally is available for energy efficient commercial building property placed in service after 2005 and before 2014. Commercial building property includes property: 

1. That depreciation is allowable;
2. Which is installed on or in a building located in the United States that is within the scope of Standard 90.1-2001;
3. Which is installed as part of the interior lighting systems; heating, cooling, ventilation’ and hot water systems; or the building envelope (everything that separates the interior of a building from its outdoor environment, including walls, windows, foundation, basement slab, ceiling, roof, and insulation); and
4. Which is certified by a qualified individual in a manner to be prescribed by the Secretary as part of a plan designed to reduce the total annual energy and power costs for the building’s lighting and heating, cooling, ventilation, and hot water systems by 50% or more in comparison to a reference building that meets the minimum requirements of Standard 90.1-2001.  
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Owners of Distressed Properties May Qualify For Debt Reduction or Even Cancellation

Monica L. McKillip, CPA, Tax Senior

Cancellation of debt income (CODI) from distressed property is becoming more prevalent; yet one more effect of today’s lagging economy.  As discouraging as the situation may be, there are several ways to minimize the tax impact of debt forgiveness or debt restructuring. 

The general rule is that CODI must be included in taxable income.  However, there are provisions in the tax law that allow for the exclusion of CODI to individuals and businesses. Taxpayers that may benefit from these provisions include real property owners that have:

• filed for bankruptcy
• demonstrated they are insolvent, or
• qualified real business property indebtedness

If you have distressed property, there are also other consequences that CODI may have on your specific tax situation.  If the CODI is excluded from your taxable income, your tax attributes must be reduced, which may mean a reduction of net operating losses, general business credits, and capital loss carryovers to name a few. 

Contact your tax professional early in a situation of distressed property. They can recommend an action plan and ideal timing of events to either minimize or eliminate your tax implications.  Your tax professional can also help you negotiate with lenders.  Many lenders would rather work with the taxpayer to reach an agreement than to go through the cost of a foreclosure.  There are multiple scenarios in which the lenders and taxpayers walk away relatively unscathed. But, you need to be proactive to achieve a favorable outcome.

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Going Green Pays Green

Nicole Young, CPA

The time has never been better to cash in on all of the “going green” tax credits the government is offering. Many of these credits were introduced in the American Recovery and Reinvestment Act of 2009 and are around through 2010.

As the cost of heat and electricity continues to rise, we see the importance of weatherization projects among green programs. It is found that homeowners save money each month on electric and gas bills when they create a more energy-efficient property; not to mention the upfront credit they receive when purchasing the energy-efficient product. The following types of energy-efficient products may be eligible for a 30% credit of up to a maximum of $1500:

• Central air conditioning
• Gas, propane, or oil hot water boiler
• Natural gas or propane furnace
• Home insulation
• Reflective roofing
• Energy efficient windows, doors, and skylights
• Storm windows and doors
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The Who, What, When, Where, Why, and How of Cost Segregation Studies

Adam S. Prest, CPA

I had a college professor who always said, “To be a good accountant, you need to understand the tax code.  To be a great accountant, you need to think like a journalist”.  In other words, a successful accountant needs to both understand the tax law and be able to communicate this information to his or her clients.  

In keeping with this theme, I have broken down the topic of Cost Segregation Studies to its primary journalistic components.   

WHAT?  A cost segregation study is an IRS approved approach that allows a taxpayer to identify, segregate, and reclassify assets that are currently classified as real property to shorter depreciable lives for federal and state income tax purposes.  

WHY?  The primary benefit of performing a cost segregation study is an immediate increase in cash flow due to reductions in federal and state tax liabilities achieved from accelerated depreciation. 

HOW?  Due to the complexities of cost segregation studies, the IRS mandates that the study be performed by professionals from both the engineering and accounting disciplines. 

WHO?  Cost segregation studies are most commonly utilized during new construction, renovations, or acquisitions.  In most situations, buildings constructed or purchased since 1994 have the best potential for tax savings. 

WHEN?  The best time to begin a cost segregation study is when plans are drafted to purchase, build, remodel, or expand a building.  If possible, the study should be completed in the year when the building is placed in service.  However, cost segregation studies can be performed on properties that have been placed in service in prior years.    

WHERE?  For more information on this topic, please feel free to e-mail me at aprest@amdcpa.com or check out AMD’s website at www.amdcpa.com.

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