tcja - Linkenheimer LLP CPAs & Advisors

Defer a Current Tax Bill With a Like-Kind Exchange

If you’re interested in selling commercial or investment real estate that has appreciated significantly, one way to defer a tax bill on the gain is with a Section 1031 “like-kind” exchange. With this transaction, you exchange the property rather than sell it. Although the real estate market has been tough recently in some locations, there are still profitable opportunities (with high resulting tax bills) when the like-kind exchange strategy may be attractive.

A like-kind exchange is any exchange of real property held for investment or for productive use in your trade or business (relinquished property) for like-kind investment, trade or business real property (replacement property).

For these purposes, like-kind is broadly defined, and most real property is considered to be like-kind with other real property. However, neither the relinquished property nor the replacement property can be real property held primarily for sale.

Asset-for-asset or boot

Under the Tax Cuts and Jobs Act, […]

By Linkenheimer LLP|2024-01-05T19:22:33+00:00January 5th, 2024|real estate, tcja|0 Comments

Use the Tax Code to Make Business Losses Less Painful

Whether you’re operating a new company or an established business, losses can happen. The federal tax code may help soften the blow by allowing businesses to apply losses to offset taxable income in future years, subject to certain limitations.

Qualifying for a deduction

The net operating loss (NOL) deduction addresses the tax inequities that can exist between businesses with stable income and those with fluctuating income. It essentially lets the latter average out their income and losses over the years and pay tax accordingly.

You may be eligible for the NOL deduction if your deductions for the tax year are greater than your income. The loss generally must be caused by deductions related to your:

Business (Schedules C and F losses, or Schedule K-1 losses from partnerships or S corporations),
Casualty and theft losses from a federally declared disaster, or
Rental property (Schedule E).

The following generally aren’t allowed when determining your NOL:

Capital losses that exceed capital gains,
The exclusion for gains from the sale or exchange of qualified small business stock,
Nonbusiness deductions that exceed nonbusiness income,
The NOL deduction itself, and
The Section 199A qualified business income deduction.

Individuals and C corporations are eligible to […]

By Linkenheimer LLP|2023-05-09T21:25:20+00:00May 9th, 2023|deductions, tcja|0 Comments

Take Advantage of the Rehabilitation Tax Credit When Altering or Adding to Business Space

If your business occupies substantial space and needs to increase or move from that space in the future, you should keep the rehabilitation tax credit in mind. This is especially true if you favor historic buildings.

The credit is equal to 20% of the qualified rehabilitation expenditures (QREs) for a qualified rehabilitated building that’s also a certified historic structure. A qualified rehabilitated building is a depreciable building that has been placed in service before the beginning of the rehabilitation and is used, after rehabilitation, in business or for the production of income (and not held primarily for sale). Additionally, the building must be “substantially” rehabilitated, which generally requires that the QREs for the rehabilitation exceed the greater of $5,000 or the adjusted basis of the existing building.

A QRE is any amount chargeable to capital and incurred in connection with the rehabilitation (including reconstruction) of a qualified rehabilitated building. QREs must be for real property (but not land) and can’t include building enlargement or acquisition costs.

The 20% credit is allocated ratably to each year in the five-year period beginning in the tax year in which the qualified rehabilitated building is placed in service. Thus, […]

By Linkenheimer LLP|2023-04-17T17:58:43+00:00April 17th, 2023|credit, tcja|0 Comments

Changes in Sec. 174 Make it a Good Time to Review the R&E Strategy of Your Business

It’s been years since the Tax Cuts and Jobs Act (TCJA) of 2017 was signed into law, but it’s still having an impact. Several provisions in the law have expired or will expire in the next few years. One provision that took effect last year was the end of current deductibility for research and experimental (R&E) expenses.

R&E expenses

The TCJA has affected many businesses, including manufacturers, that have significant R&E costs. Starting in 2022, Internal Revenue Code Section 174 R&E expenditures must be capitalized and amortized over five years (15 years for research conducted outside the United States). Previously, businesses had the option of deducting these costs immediately as current expenses.

The TCJA also expanded the types of activities that are considered R&E for purposes of IRC Sec. 174. For example, software development costs are now considered R&E expenses subject to the amortization requirement.

Potential strategies

Businesses should consider the following strategies for minimizing the impact of these changes:

Analyze costs carefully to identify those that constitute R&E expenses and those that are properly characterized as other types of expenses (such as general business expenses under IRC Sec. 162) that continue to qualify for immediate deduction.

[…]

By Linkenheimer LLP|2023-03-13T19:00:07+00:00March 13th, 2023|irs, research credit, tcja|0 Comments

Notification Of Change To Tax Accounting For Research Expenses

RESEARCH EXPENSES

Under the Tax Cuts and Jobs Act (TCJA), for taxable years beginning after December 31, 2021, specified research or experimental expenditures must be capitalized and amortized over five years (15 years for expenditures which are attributable to research conducted outside the United States). Under the TCJA provision, all research expenses are amortized beginning with the midpoint of the taxable year in which such expenses are paid or incurred.

Defining research and experimental expenditures

For taxable years beginning before January 1, 2022, it didn’t matter much whether a taxpayer classified an expenditure as an ordinary and necessary business expense or as research and experimental (R&E) expenditures because either way, the taxpayer could deduct the full amount in the year it was incurred.

But, with the TCJA’s requirement that research and experimental expenses must be amortized and capitalized for taxable years beginning after December 31, 2021, the classification becomes very important.

The IRS defines research and experimental expenditures as research and development costs in the experimental or laboratory sense, which include all costs that are incident to the development or improvement of a product.

The regulations do not provide an exhaustive list of what constitutes research and experimental expenditures. However, the regulations […]

By Linkenheimer LLP|2022-12-28T18:12:25+00:00December 28th, 2022|expensing, research credit, tcja|0 Comments