2011 Tax Update

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A higher return on experience.

2011 Tax Update10 timely topics in 100 minutes


Moderator

Annette Tenerelli-LemkeTax [email protected]

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Current Tax Climateand planning opportunities


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Presenters

Mike MonaghanPartner, National Tax Office 586.416.4943 [email protected]

Amy Ciminello Tax Specialist, National Tax Office614.222.9044 [email protected]


Current tax environment

Pending tax reform proposals

Tax planning opportunities

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Agenda


Current Tax Law: Rising Tax Rates – Unearned Income


Example:2011-2013 Tax on Ordinary Income


Each planning situation is unique.

Need to consider various tax reform proposals.

Conventional planning methods for deferral of income and acceleration of deductions apply to short-term manipulations of income.

Items with long term effects need more consideration due to scheduled increases in tax rates starting 2013.

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PM Perspective


Pending Tax Reform Proposals

Super Committee 6 Democrats and 6 Republicans Assigned with determining $1.5 trillion deficit-reduction measures over a

10-year period

Plan is due 11/23/11


Short term accelerations State and local tax deposits Property taxes Charitable contributions

Long term accelerations Planning for NOL Installment sales

Consider applicability of alternative minimum tax

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Tax Planning Opportunities


Election to forgo net operating loss carryback

Outlook on tax rates affects decision to carryback NOL

Other considerations:• Cash flow needs• Likelihood of future taxable income• Time value of money

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Accelerated depreciation methods Cost segregation adjustments Section 179 elections Bonus depreciation on new assets

• 100% through 12/31/2011

Other Accounting Methods

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Changing tax rates impact the entity choice decision. Pass-through entities may be less advantageous if individual rates

increase and corporate rates stay the same. With the individual tax rates subject to an increase (as high as 43.4% for

tax year 2013), pass-through entities may be disadvantaged.

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Entity Choice


Example:2011-2013 Pass-through vs. C Corporation



Health Care Reform


James MinutoloSenior Manager, National Tax [email protected]

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Robert KouzaSenior Tax [email protected]

Presenters


Enacted March 23, 2010

Staggered effective dates from date of enactment through 2018.

With a few small exceptions, law remains effective and effective dates for many key provisions have passed or are looming in the near future.

Law Suits

Multiple suits at varying points of progress.

11th Circuit Court of Appeals found individual mandate unconstitutional.

6th Circuit Court of Appeals found individual mandate constitutional.

Conflict among circuits sets up a Supreme Court challenge.

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Status of Legislation and Law Suits


Many provisions are already effective.

More become effective every year.

Complete repeal is unlikely.

Law suits may overturn some provisions but unlikely to invalidate entire statute, especially the tax provisions.

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Don’t Ignore Health Care Reform


Extended coverage for children to age 26 (2010 – except grandfathered plans)

Small employer health insurance credit (2010 – No more than 25 FTEs with average comp less than $25,000)

Nondiscrimination rules for fully insured plans (2010 – enforcement deferred pending further guidance)

W-2 reporting of health plan costs (2011 – enforcement deferred until 2012 for large employers; 2013 for employers issuing fewer than 250 W-2s in 2011)

OTC medications not eligible for tax-free reimbursement (2011 –most plans should have been amended)

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Selected Currently Effective Provisions


Expanded 1099 reporting (2012 – Repealed)

W-2 enforcement of health cost reporting for employers that issue 250 or more W-2s in 2011

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Selected Provisions Effective in 2012


Increased Medicare Tax (0.9% additional on excess earned income; 3.8% on excess unearned income - $200,000 MAGI single, $250,000 MAGI MFJ)

$2,500 cap on flexible spending account contributions

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Large employer health care mandate (penalties of $2,000 or $3,000 per uncovered employee for employers with 50 or more FTEs)

Individual health care mandate (penalty on individuals who fail to carry qualifying coverage)

Health care vouchers (repealed)

State health care exchanges required to be active

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40% excise tax on “Cadillac” plans becomes effective

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Have someone in your organization who is specifically responsible for developing and implementing a strategy to address health care reform.

Identify your team of advisors and make sure they know you are going to be looking to them for guidance about how to deal with health care reform.

Collect information – employee census and cost and utilization data.

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What Should I Be Doing Now?



Tax Accounting Methods and why they are important to you


Kurt PiwkoSenior Manager, National Tax [email protected]

Rob ShefferlySenior Manager, National Tax Office586.416.4927 [email protected]

Presenters


Method used to determine the amount of income or expense to recognize Controls both timing and amount Does not change the overall amount of income a taxpayer will

recognize over time but only when

Includes both an overall method of accounting as well as the method to account for individual items The cash or accrual method of accounting would be a taxpayer’s

overall method of accounting The method of depreciating an asset would be a method of

accounting for a particular item

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What is a Method of Accounting?


Methods of accounting cannot be changed by the taxpayer without the consent of the IRS A formal set of procedures exists to change methods Changing a method under the proper procedure generally provides

audit protection Even if previous method was incorrect, no penalties or interest can

be assessed when a method is properly changed

When a method is changed, a cumulative adjustment to income must be made When changed voluntarily, any increase to income is spread over 4

years while a decrease to income is deducted immediately When change is involuntarily (e.g., in an IRS audit), the entire impact

is reported in a single year

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Why is a Method of Accounting Important?


Changing between methods can accelerate deductions Personal and real property taxes

• Property taxes may be deducted in the year in which a lien attaches or when the owner becomes personally liable as long as the taxes are paid within 8.5 months of yearend.

• The “lien date” is different in each state, but in some states the date for the taxes due next year is at the end of the current year.

• Example: A Michigan manufacturing business owes $200,000 in personal property taxes each year: $175,000 in July and $25,000 in December. For book purposes, the taxes are capitalized as prepaids and amortized over 12 months. As of December 31, the business has $115,000 of prepaid property taxes on its books. This taxpayer could deduct the entire $115,000 of prepaid taxes and deduct the

$175,000 due next July as well.

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Tax Planning - Opportunities


Changing from an impermissible method to a permissible method Inventory reserves

• In general, reserves for estimated losses on inventory are not deductible until actually realized.

• Example: A taxpayer accrued reserved $300,000 related to inventory that was not getting sold as quickly and it expected and was becoming obsolete. This reserve was deducted for tax purposes when it was established. An accounting method change could be filed to correct the impermissible

method of accounting. $75,000 of income would be recorded in the year of the change and each of the

next 3 years. The IRS would be barred from assessing tax in any tax year related to this

issue, even if it were auditing an earlier year when this deduction was taken.

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Tax Planning – Exposure Mitigation


Changing from an impermissible method to a permissible method Other accruals for estimated losses

• In general, reserves for estimated losses are not deductible until actually realized for tax purposes.

• Example: In 2010, taxpayer accrued for a $500,000 lawsuit that it expected to lose. In 2011, it actually lost the suit and paid the other party. It deducted this amount in 2010 and discovered the issue in 2011. An accounting method change could be filed for 2011 to correct the impermissible

method of accounting.

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Tax Planning – Exposure Mitigation (cont.)


Cash vs. Accrual Cash method is generally available to most small businesses Cash method can still be available to mid- and large-sized businesses as

long as no inventory is maintained (and other various requirements are met)

Compensation Compensation can only be deducted if fixed by yearend and paid within

2.5 months after yearend• Includes payroll, bonuses, vacation pay, sick pay, etc.

Payroll Taxes Payroll taxes on all compensation can be deducted if the related

compensation is fixed by yearend and the taxes are paid within 8.5 months of yearend

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Appendix: Other Accounting Method Change Examples


Cash and Volume Discounts Many taxpayers record cash or volume discounts as income when received

instead of reducing the acquisition cost of the related inventory For tax purposes, these amounts may be capitalized

Depreciation Opportunities typically exist to review fixed assets (and make necessary

changes) to verify proper life, method, classification and immediate expensing opportunities have been fully taken advantage of

Self-insured Medical Accrual (IBNR) Generally represents cost of medical services provided to employees of a

self-insured employer but for which claims have not yet been processed Many employers do not deduct this amount, but much of it is deductible

under certain circumstances

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Appendix: Other Accounting Method Change Examples (cont.)



Entity Choice


Andy CovodeSenior Tax [email protected]

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Derik RynearsonTax [email protected]

Presenters


Pass-through entity – An entity taxed as an S corporation, a partnership, or a sole proprietorship

S corporation – A corporation that has made an election to be taxed as an S corporation instead of a C corporation

Partnership – A legal entity taxed as a partnership. It may include general partnerships, limited partnership, limited liability company, or other joint venture arrangements

Sole Proprietorship – A business not operating through a legal entity or operating through a limited liability company owned by only one owner

C Corporation – A corporation that has not made an election to be taxed as an S corporation

Terminology


Legal liability protection of owners

Expense of formation and operation Organizational documents Management decisions Annual meetings

Capital structure flexibility

Ownership transfer flexibility

Legal recognition in other jurisdictions

Other state law considerations

Non-Tax Considerations


Taxability of transfers of property to entity

Capital structure flexibility and basis

Raising additional capital (e.g., IPO)

Foreign treatment of international transactions

Ownership limitations

Employment taxes

Fringe benefits and compensation of owners

Disposition/termination/reorganization plans

Non-Tax Considerations


C corporation Entity pays Federal tax on income earned Shareholders taxed on dividends received (“double tax”) States typically follow Federal treatment

Flow-through entities Entity pays no Federal income tax Owners taxed on income earned by entity Distributions can generally be made tax-free (“double tax relief”)

States split on tax treatment

Tax Considerations


Schedule of Maximum Tax Rates


Example – 2011 Tax on Operating Income


Example (cont.) - 2011 Tax on Distributions


C corporations generally pay less Federal tax than pass-through entities on operating income.

C corporations and their shareholders pay significantly more tax than pass-through entities when income is distributed.

C corporations can be advantageous when the distributions can be deferred far enough into the future so that the net present value (NPV) of the future tax cost is low when compared to the current tax savings.

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Example (cont.) - Summary of 2011 Tax Rates


There is no single answer for all businesses.

The choice must be evaluated on a holistic basis to include consideration for all items including legal issues, employment issues, exit strategy, and federal taxes and state taxes.

Converting a business from a pass-through to a C corporation or vice versa may not be a simple transaction and may have its own advantages and disadvantages depending on the current structure of the business.

Any evaluation involves a significant amount of projections (i.e., future income levels, need for dividend distributions, appreciation of business, etc.) and assumptions (i.e., future tax rates, present value interest rates, etc.) which may prove to be inaccurate.

Even when considering the increased cost of the disposition of the business, C corporations can still be advantageous when the tax on the sale of the business is deferred far enough into the future.

State taxes are a critical component because they can significantly alter the spread between corporate and flow-through tax rates.

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Summary



Transaction Planning


Presenters

Mark JolleyPartner, National Tax [email protected]

Emily MurphyManager, National Tax [email protected]


C Corporation: Stock sale versus asset sale

Stock sale: Exclusion of gain on sale of Section 1202 stock

Stock sale: Election to treat sale of stock as deemed asset sale under Section 338(h)(10)

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Overview


When a C corporation is ultimately sold in a taxable sale, the sale may be structured as a stock sale or asset sale.

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C Corporation: Stock Sale vs. Asset Sale


Assumptions:

FMV of assets = $1,000,000

Inside basis of assets = $100,000

Sole shareholder’s outside basis in stock of = $75,000

In the asset sale, the assets are sold, then the company liquidates and provides cash to shareholder.

Observations:

In asset sale, the seller recognizes double tax, decreasing net proceeds on sale.

In reality, the sales price of the company in stock sale would likely be adjusted for lack of step-up to buyer.

C Corporation: Stock Sale vs. Asset SaleExample: Sale of C Corporation


Observations: Because of the purchase price adjustment related to the step-up of the

underlying assets, the difference between a stock sale and asset sale is generally much smaller than shown in the previous slide.

There may be other adjustments to the purchase price for stock versus asset sale for non-tax differences in stock vs. asset sale.

C Corporation: Stock Sale vs. Asset SaleExample: Adjustment for tax benefit


Section 1202 provides that the gain on sale of §1202 stock may be excluded from income Exclusion limited to greater of $10,000,000 per taxpayer per company

or 10 times aggregate basis of qualified stock disposed during the year. May effectively eliminate double tax on sale of §1202 C corporation

stock. Section 1202 is most beneficial in the context of a stock sale, though

the provision will still benefit in an asset sale followed by liquidation.

100% gain exclusion for qualifying stock acquired after 9/27/10 and before 1/1/12 Excluded gain is NOT an AMT preference item.

There is a limited time to take advantage of the provisions of §1202 before the end of 2011 Not elective – If you have acquired §1202 stock and continue to meet

the §1202 requirements, you are entitled to the gain exclusion upon sale.

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Gain exclusion under Section 1202


Stock must be issued by C corporation.

Stock must be acquired as original issue in exchange for money or property (not stock), or as compensation for services.

Stock must be held for five years before sale.

Business must meet the “qualified small business” criteria.

Ineligible corporations include DISC, 936 Corporation, RIC, REIT, REMIC, Cooperative.

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Section 1202 Stock - Qualifications


Domestic C Corporation with aggregate gross assets less than $50,000,000 from 8/10/93 through immediate post-issuance

All business types eligible except for: Certain professional service businesses Banking, insurance, financing, leasing, investing, or “similar” Farming and mining Operating a hotel, motel, restaurant, or “similar”

More than 80% of assets (by value) must be used to conduct qualified business activity The determination of assets used in a qualified business activity is

subject to additional rules, particularly for new corporations, corporations with investments in subsidiaries, and corporations with non-business real estate holdings

Must meet this requirement for “substantially all” of taxpayer’s stock holding period

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Qualified Small Business Criteria


Acquisition or start-up tax vehicles Form new companies between now and 12/31/2011 with specific plans

to use funds in qualifying businesses afterwards (within 2 years)

Restructuring existing businesses: Special partnership recapitalizations underneath new holding company Transfer existing C corporations under new holding company in taxable

transaction Have new company buy other selective assets from other related

companies (maybe high basis or with other attributes)

Stock options Exercise stock options in eligible business and exclude gain in upon

sale

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Section 1202 - Planning


Observations: The elimination of tax at the shareholder level makes this same transaction

discussed earlier much more lucrative – eliminating the individual tax of 90-110K in this example – or 15% greater net proceeds to shareholders.

Section 1202 - Example


Section 338(h)(10) allows the seller of stock in a corporation as sale of assets to the buyer, even though the actual nature of the sale was a stock sale Best of both worlds - Buyer desires stepped up basis in assets, but the

parties have non-tax reasons for desiring a stock sale. May result in additional tax cost to seller. The seller will demand gross-up

of sales price for additional costs as result of election.

Election can be made, at the agreement of both parties, when: Purchaser is a CORPORATION Target is

• 80% or greater owned subsidiary of seller, or• an S corporation

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Section 338(h)(10) Election


Deemed sale of assets could trigger built-in gains tax, if the corporation was previously a C corporation.

The sale of assets may result in ordinary income related to sale of ordinary assets (inventory, depreciation recapture, etc.), taxed at higher rates than capital gains.

Furthermore, if shareholders’ basis in stock is high, shareholder could recognize ordinary income on sale of ordinary assets, and then recognize capital loss on liquidation. Entire gain could have been capital gain absent the election. If taxpayer does not have other capital gains, they may be able to

deduct only $3,000 capital losses each year.

Nevertheless, the issues above can be addressed through a gross-up in the purchase price. 338(h)(10) elections can be a powerful tool in sale of S corporations. The costs/benefits must be analyzed based on facts of each transaction.

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Section 338(h)(10) Election Implications:S Corporation



5 minute break



Estate Planning


Dawn JinskySenior Tax [email protected]

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James MinutoloSenior Manager, National Tax [email protected]

Presenters


Current Law and Scheduled Changes for 2013


Take action today while the exemption is high, tax rates are low, and interest rates are low! We may not get another chance.

Evaluate various estate planning strategies to determine which one is right for you. We’d be happy to meet with you to discuss any of the following: Lifetime gifting Grantor Retained Annuity Trust (GRAT) Charitable Trusts (CRT, CLT) Family LLC Qualified Personal Residence Trust (QPRT) More

Gather information and develop your personal balance sheet.

Opportunities


What is it? Summary of personal assets and liabilities showing overall net worth Outlines titling of assets, liquid and illiquid assets

Why is it important? Manages the overall financial health of your family more effectively Allows one to identify financial issues, set goals, and track progress

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Personal Balance Sheet



Basic concept

Common questions include: What are the benefits? What are the advantages of

utilizing a credit shelter trust? When would you not want to?

How do you make the election to use portability?

A New Planning Concept Called Portability



Investment Planning


Presenters

Jim BairdPartner, Chief Investment Strategist – [email protected]

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Mark DixonPartner, Chief Investment Officer – [email protected]


Wealth Management Industry At a Glance

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Market Volatility: Investors Cannot Control ItBut Can Use It To Their Advantage

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Excessive levels of volatility can

be painful for investors but

can provide a window of

opportunity to engage in tax-

motivated transactions.

Source: PMFA, Bloomberg


Capital Losses: Points to Remember

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Capital Gains Tax Rates Rising? Given the severe budget deficits and the historically low capital gains rates currently in force, the potential for capital gains rates to rise in the years ahead is significant.

Capital Losses Can Be Carried Forward. While it would be clearly preferable to not incur a loss, taking advantage of opportunities created by market conditions can provide the opportunity to harvest losses.

Stay invested. Selling positions at a loss doesn’t mean deviating from one’s long-term plan.


Tax Benefits of Municipal Yields CreateOpportunity

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Recent declines in Treasury

yields, and the expectation for them to remain

low for some time, have made municipal yields attractive on an after-tax basis.

As of 10/28/11Source: PMFA, JP Morgan


Other Considerations

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Asset location matters. Consideration of the tax efficiency of a portfolio can result in superior after-tax returns.

Required minimum distributions. Does your IRA qualify and what withdrawal amount is needed?

Early coordination is key. Coordination of tax planning ideas with your financial advisor and tax consultant, BEFORE year-end, will produce the best results.


Disclosures

Past Performance Does Not Guarantee Future Results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis non-factual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about economic and market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

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State & Local TaxIllinois, Ohio, & Michigan Updates


Presenters

Bob WoolleyPartner, Tax [email protected]

Julie CorriganSenior Tax Manager, [email protected]


Presenters

Curtis RuppalPartner, SALT Practice [email protected]

Rachel KellerSenior Tax Manager, [email protected]


Corporate Income Tax Rate Increased from 4.8% to 7% for taxable years beginning on or after 1/1/11 Reduced to 5.25% for taxable years beginning on or after 1/1/15, and

reduced back to 4.8% for taxable years beginning on or after 1/1/25 Additional Replacement Tax of 2.5% still applies

Individual, Trust, and Estate Income Tax Rate Increased from 3% to 5% for taxable years beginning on or after 1/1/11 Reduced to 3.75% for taxable years beginning on or after 1/1/15, and

reduced to 3.25% for taxable years beginning on or after 1/1/25 Additional Personal Property Replacement Tax of 1.5% (PTEs)

Suspension of Corporate Net Operating Loss Utilization

Estimated Tax Prior Year Safe Harbor

IL Estate Tax reinstated for persons dying after 12/31/1077

Illinois Tax Act Highlights


Angel Investment Credit Program

Unitary Business Group changes

Electronic filing programs New EFT filing thresholds

• $20,000 aggregate tax liability for business taxes effective 10/1/10• $12,000 aggregate payroll tax liability effective 1/1/11• $200,000 for individuals• Enroll separately through IL to make required deposits

Roll-out electronic filing for the IL-1120-ST in March 2012. Other business income tax forms will follow (IL-1041, IL-1065, and IL-990-T)

Effective 2/1/12, TeleFile will no longer be available for filing Sales and Use Tax Returns (Form ST-1) by telephone

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Illinois Update



State & Local TaxOhio Update


Governor John Kasich signed Am Sub HB 153 on 06/30/11

Repealed the Ohio estate tax applicable to the estates of individuals dying on or after 01/01/13

Enacted two amnesty programs – significant tax saving opportunities1. Use Tax Amnesty Program available 10/01/11 – 05/01/132. General Tax Amnesty Program available 05/01/12 – 06/15/12

Creates nonrefundable small business investment credit “Invest Ohio”

Creates new refundable job retention tax credit against the CAT, corporate franchise tax, and the personal income tax for businesses

Extends the historic building rehabilitation tax credit, rather than letting the credit expire 06/30/11.

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Ohio Budget Bill Highlights


Department of Taxation closed seven district offices including Akron, Cincinnati, Cleveland, Dayton, Toledo, Youngstown and Zainesville

Pass-Through Entity Tax Business Tax Division Alert: Addresses a Nonresident Individual’s Ability to File Form IT-1040 when an Individual Investor is Included in an IT-4708 Composite Return

Pass-Through Entity Tax Audit Issues: Gain recognized by non-resident >20% equity investor selling an

investment in a closely held Ohio business must be apportioned to Ohio Related Member Addback Adjustments (>40% direct or indirect) Compensation Addback (>20%)

Ohio Commercial Activity Tax Voluntary Disclosure Program

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Ohio Update



State & Local TaxMichigan Update


Effective repeal of MBT on 12/31/2011

CIT effective 1/1/2012; no direct business tax on flow-through entity

Beneficial ownership interest in a flow-through entity doing business in Michigan may create nexus for members and shareholders having no other Michigan activity

MBT net operating losses will expire along with the MBT on 12/31/2011

Financial statement adjustments required as a result of MBT repeal

Expanded Michigan withholding requirements in tiered entity structure

Only credit retained under CIT is the Small Business Credit

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Michigan Tax Reform Highlights


Importance of proper planning for transition from MBT to CIT Fiscal year taxpayers Timing of income/deductions Payment of winter 2011 industrial personal property taxes Entity selection considerations Proper planning for payment of 2011/2012 estimated taxes Certificated credit holder election into the MBT post-2011

Personal property tax reform

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Michigan Update



International Tax PlanningIssues for US Owned Foreign Business Operations


Bill HensonPartner, International Tax [email protected]

Kellie BeckerSenior Tax Manager, International Tax [email protected]

Presenters


US structure can make a difference Partnership or S corporation C corporation

US treatment of foreign income Branch Disregarded Entity

• “Check-the-Box” elections Foreign Corporation

• “Per Se” Corporations

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US Tax Considerations


Foreign corporation income not subject to tax until repatriated Powerful planning technique Must be able to keep cash offshore

Notable exceptions to the rule Loans to US shareholders Use of foreign corporations as security for loans “Subpart F” income

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Deferral of Income


Tax rate depends on US status C corporation, Partnership, S corporation, Individuals

Capital gains rate available to individuals Treaty countries only

Foreign Tax Credit Generally available to corporations only

• Preserves corporate/shareholder level taxation Individuals do get a FTC for withholding taxes

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Taxation of Dividends


Branches or “Flow-Through” Entities taxed currently Can elect flow-through treatment for some foreign entities Income or loss taxed currently in US Allows for FTC for foreign corporate level taxes to individuals Flow-Through losses can be “Re-Captured” Foreign currency translation

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Taxation of Foreign Branch



Tax SolutionsYear-end reminders


Presenters

Nathan BuchalskiSenior Manager, Tax Solutions Practice [email protected]

Jonathan WinterkornSenior Tax [email protected]


For new or improved products or processes

Qualifying cost

Wages, supplies, contract research

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Research & Development (R&D) Tax Credit


Taxpayer is an Ohio software development company and has 35 developers making an average of $75,000 a year.

These developers spend 80% or more of their time working on qualifying R&D projects.

This client has the potential for a $150,000 Federal tax credit plus an additional $50,000 in Ohio R&D tax credits that can be applied towards Ohio’s CAT tax.

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Research & Development (R&D) Example


Qualifying Activities MPGE

Must be calculated on an item by item basis

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Domestic Producers Activity Deduction (DPAD)


Taxpayer has taxable income of $4,000,000 and manufactures products as well as resells third part products.

Qualifying activities represent 83% of the gross receipts.

Upon examination, it is determined that 93% of the taxable income comes from qualified activities.

Without proper review and documentation of the qualified activities and associated cost, this client would have lost $120,000 of tax deductions.

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DPAD Example


Cost segregation for new buildings Review capitalize vs. expense

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Cost Segregation/Fixed Asset Analysis


Taxpayer is building an apartment building for $15 million. Below is an illustration of tax benefit for doing a cost segregation with no bonus depreciation, 50% bonus depreciation, and 100% bonus depreciation.

No Bonus Depreciation: 1st year tax savings of $225,000; NPV of savings over the life of the building of $530,000.

50% Bonus Depreciation: 1st year tax savings of $940,000; NPV of savings over the life of the building of $665,000.

100% Bonus Depreciation: 1st year tax savings of $1,650,000; NPV of savings over the life of the building of $800,000.

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Cost Segregation Example with100% Bonus Depreciation


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