Tax Planning for Property Owners - 2022 Year-End and Beyond

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2020 WithumSmith+Brown, PC
Tax Planning for Property
Owners – 2022 Year-End
and Beyond
Withum’s Real Estate Services Team Presents

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2020 WithumSmith+Brown, PC
• Webinar is being recorded
• Program session followed by Q&A
• Send in your questions!
• Type in the Questions Pane of the GoToWebinar Panel
• Slides and recording will be emailed after the webinar
Housekeeping

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2020 WithumSmith+Brown, PC
Rebecca Machinga, CPA, CGMA
Partner, Practice Leader, Real Estate Services Team
Rebecca is Withum’s Real Estate Services Practice Leader with over 25
years of public accounting experience specializing in tax and consulting
services, primarily with real estate entities and closely-held service
companies.
She serves on the Princeton Mercer Regional Chamber of Commerce
Real Estate Business Alliance, is the US representative on the HLB
International Real Estate Committee, serves as Chair of the HLB
International North American Real Estate Committee and is on the Board
of Directors of Spiezle Architectural Group, Inc.

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2020 WithumSmith+Brown, PC
Ryan Williams, CPA
Manager, Real Estate Services Team Member
Ryan Williams has over 9 years of experience in tax preparation and
review of corporations, partnerships and individuals, including federal,
state and foreign attachments. He specializes in flow-through tax returns
in the real estate industry and is a key tax member of Withum’s Real
Estate Team. He is a licensed Certified Public Accountant in the State of
New Jersey

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2020 WithumSmith+Brown, PC
Brittany Perez-Trepichio, CPA, MBA
Senior Manager, Real Estate Services Team Member
Brittany Perez-Trepichio has over six years of professional experience.
She specializes in partnership tax within the real estate industry, with
expertise in complex partnership concepts including mergers and
acquisitions, transfers, redemptions and liquidations of partnership
interests. She has in-depth knowledge and experience in understanding
and implementing key tax provisions in partnership operating agreements
including income allocations, built-in gains contributions, and step-
up/(down) provisions related to section 754 elections.

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2020 WithumSmith+Brown, PC
Sara Palovick, CPA
Partner, Real Estate Services Team Member
Sara Palovick serves as a tax partner with expertise in the real estate
industry. She specializes in partnership and individual taxation. Sara
assists in all areas of compliance, as well as tax planning and succession
planning. Her clients include both closely held and institutional real
estate. She is a prior recipient of Withum’s Strength Award and is actively
involved in the Firm’s DisAbility+ Team Member Resource Group
(TMRG).
Sara joined Withum in 2008.

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2020 WithumSmith+Brown, PC
Brian Lovett, CPA, JD
Partner, Team Leader, Real Estate Services Team
Brian Lovett is a tax partner based in Withum’s East Brunswick office and
is a certified public accountant in the states of New Jersey and
Pennsylvania. He has extensive experience serving the tax needs of both
public companies and closely-held businesses, including all aspects of
tax compliance for partnerships and corporations.
Brian advises clients with regard to the structure and tax consequences
of new business ventures, and assists with restructuring existing
businesses for increased tax efficiency. Prior to joining Withum, he was
with a “Big 4” accounting firm, working closely with large, multinational
real estate investment companies.

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What We’ll Cover
• Bonus Depreciation
• Section 163(j)
• Tax Deferral Options
Year-End Tax Planning: Ideas & Reminders
• Section 179D - Energy Efficient Commercial Building deduction
• Section 45L - Energy Efficient Home credit
• Investment Tax Credit
• Residential energy credit changes
The Inflation Reduction Act – Changes for 2023 & Beyond
K-2 & K-3 Reporting Requirements for 2022

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Bonus Depreciation

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In 2017 the TCJA extended
the 100% additional first year
depreciation deduction, a.k.a.
bonus depreciation
Bonus depreciation generally
applies to depreciable
business assets, both new
and used, with a recovery
period of 20 years or less
• Machinery, equipment, land
improvements etc.
The assets must be
purchased and placed in
service before the end of the
taxpayers taxable year in
order to qualify
Bonus Depreciation
Background

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Bonus Depreciation
Qualified Improvement Property
 Qualified Improvement property (QIP) is any improvement that is
Section 1250 property made by the taxpayer to an interior portion of a
nonresidential building placed in service after the date the building was
placed in service
 QIP can also be eligible for bonus depreciation unless the taxpayer is a
real property trade or business and has elected out of the business
interest limitations under 163(j)

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Bonus Depreciation
Qualified Improvement Property
Bonus depreciation is set to
begin decreasing in tax year
2023.
Starting in 2023, bonus
depreciation is set to reduce to
80% and will decrease by 20%
each succeeding tax year until it
is fully phased-out in 2027
In order to take advantage of
100% bonus depreciation all
qualified assets should be
purchased and placed in service
before December 31, 2022.

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Section 163(j)
Business Interest Expense Deduction

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Deductible
business
interest
expense may
not exceed
The taxpayer’s
business
interest income
for the year
30% of the
taxpayer’s
Adjusted
Taxable
Income (ATI)
The taxpayer’s
floor plan
financing
interest
expense for
the year
Section 163(j)
Business Interest Expense Deduction
Any business interest expense not allowed as a deduction due to the 163(j) limitation
is generally carried forward and treated as business interest paid or accrued in the
following taxable year

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 Adjusted Taxable Income (ATI) modification for 2022 and forward
 ATI no longer includes an addback for depreciation, amortization, or depletion
 Lowers ATI, reduces allowable current year business interest expense deduction
 Small Business Exception (determined annually)
 Average annual gross receipts for $27 million or less in the previous 3 years
• Indexed for inflation annually
Section 163(j)
continued

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Real Property
Trade/Business
Any real property
development, redevelopment,
construction, reconstruction,
acquisition, conversion,
rental, operation,
management, leasing, or
brokerage trade or business
One-time
irrevocable election
Taxpayer must follow
procedures outlined
in §1.163(j)-9 or
proposed regulations
Includes the requirement to
attach a statement to a timely
filed federal income tax
return, including extensions,
for the year of election
Section 163(j)
Election Out of 163(j) for Real Property Trade/Business

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Tax Deferral Options

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Post-TCJA
limited
availability to
real property
Updates for
specific states &
storm
extensions
Need for
taxpayer to plan
in advance
1031 Exchange

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Defer eligible
gain until
12/31/2026
Certain benefits
no longer
available due to
dates passed
Eligible
investment in
OZ businesses
Qualified Opportunity Zones

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The Inflation Reduction Act:
Changes for 2023 & Beyond

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Formerly up to $1.80/sq ft, was permanently extended in 2021
After the IRA, deduction can now be as much as $5.00/sq ft
Prevailing Wage and Apprenticeship requirements for full benefit
Expanded availability for designers of buildings owned by exempt entities
Section 179D

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Credit expanded beginning in 2023 and extended through 2032
Maximum available credit increased to $5,000
Prevailing Wage requirements
No longer limited to 3 story residential buildings
Section 45L
Energy Efficient Home Credit

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Modified and expanded by the IRA – now available through 2034
UP to 30% tax credit for investments in wind, solar and other renewable
projects
Prevailing Wage and Apprenticeship requirements
Additional 10% credit for certain eligible projects
Investment Tax Credit

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Similar to ITC, reinstates benefit and extends timeline
For 2022, increased back to 30%
Available for property acquired, not for leased systems
Residential Solar Energy Credit