Two tax provisions in the stimulus bill are intended to help real estate and facility organizations.
The first deals with a provision called cancellation of debt (COD). Normally if a business owes $100 to a bank, for example, but can only pay $80, the $20 is taxed as income.
For the 2009 and 2010 calendar years, businesses can defer those taxes for five years. Once the time has elapsed, the taxes can be repaid over five years, rather than all at once, says David Pearce, vice president and counsel for the Real Estate Roundtable.
There is one caveat, says Charles Goulding, president of Energy Tax Savers, Inc. Some companies in today’s economy are facing liquidity problems. General Motors is a prominent example. Companies that already face a cash crunch may not want to further weaken their liquidity by paying down debt just for the tax benefits, Goulding says.
REITs and corporations are able to take advantage of the COD provision because it applies to debt-for-debt transactions and cash-for-debt, Pearce says.
A second tax provision in the bill extends a rule that allows companies to write off 50 percent of the cost of depreciable property acquired in 2009.
“The really nice thing about the bonus depreciation is that you can marry it with some of the other incentives in the bill to multiply the effect,” says Kyle Pitsor, vice president of government relations for the National Electrical Manufacturers Association.
The bonus depreciation provision doesn’t apply to all property though, Goulding says. For example, items that depreciate over the 39-year schedule, such as chillers or a building’s core and shell, can’t be counted for the bonus depreciation.
Normally when purchasing a building, a cost segregation study is performed to determine what items can be depreciated on a five-, seven- or 15-year schedule, Goulding says. Property types with shorter depreciation like systems furniture can qualify for the bonus deprecation provision, he says.
“This provision helps companies in a major way,” he says. “What it is going to do is push certain projects that might be on the bubble over the threshold.”
One way to get extra mileage out of the depreciation allowance is to combine it with incentives under EPAct, Goulding says.
“The first driver is energy cost savings,” he says. “But think of it as layering a cake. None of these programs should be looked at in a vacuum.”
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