The PATH Act impacts commercial construction projects
The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) contains a number of subsections that create tremendous opportunity for commercial real estate owners. Since 2001, tax extender packages have come and gone, extending incentives for a short period of time without guarantee of renewal. This has resulted in a constant state of uncertainty, interfering with a taxpayer’s planning and decision making processes. The PATH Act, however, makes permanent the 15-year straight-line cost-recovery status of Qualified Leasehold Improvements (QLI), Qualified Restaurant Buildings and Improvements, and Qualified Retail Improvements (QRI). Furthermore, the Act extends bonus depreciation for five years and the 179D tax credit for two. The PATH Act has contributed to a sense of confidence in the taxpayer, allowing him to freely plan new construction projects, expansions, and energy-efficient improvements, fully aware of the incentives to which he is entitled. The significance of the record five-year extension of Bonus Depreciation cannot be overstated. Immediate expensing of capital expenditures is such a powerful tool, and the PATH Act permits Bonus Depreciation at 50% for Tax Years 2015, 2016, and 2017 before being reduced to 40% in 2018 and 30% in 2019. Bonus Depreciation has played a tremendous role in new construction projects over the years and being able to rely on these deductions will have a huge impact on overall tax planning strategy. EPAct 179D deductions have been extended for two years under the Act. For tax year 2015, the provision is reinstated retroactively, and will continue to use ASHRAE 90.1-2001 standards as a benchmark for determining the eligibility of a building’s energy-efficient improvements. In tax year 2016 however, buildings will be compared to ASHRAE standards 90.1-2007. The 2007 standards are very similar to those established in 2001, with the exception of more stringent interior lighting requirements – to meet the 2007 standards, taxpayers must show an average of 25% greater improvement in energy-efficiency.The influence of the PATH Act is going to be felt in all areas of the commercial real estate world. The table below demonstrate the impact of the PATH Act in two very different scenarios. The PATH Act is just one of several new pieces of legislation that may create opportunities for the commercial property owner. All tax incentives since 2001 have been compiled and organized into Capstan’s Depreciation Accelerator, a streamlined document that has become an essential tool for real estate professionals nationwide. To receive a complimentary copy, please email firstname.lastname@example.org
. Terri S. Johnson, CRE, is a co-founder and managing partner at Capstan Tax Strategies.