Depreciation Strategies in Real Estate Finance: Maximizing Bonus Depreciation on Qualified Property

Description

Tax depreciation deductions have always been an essential aspect of rental real estate finance. Real estate owners can use tax depreciation to reduce taxable income while still generating positive cash flow. In structuring deals post-tax reform, there is much to consider not only from a tax depreciation perspective but from the interplay between tax depreciation and other changes under tax reform, including the interest deduction limitation, the qualified business income deduction and net operating loss (NOL) rules.

Tax reform increased bonus depreciation from 50% to 100% for qualified property. Section 168(k) defined qualified property as assets that have a recovery period of 20 years or less and includes improvements made to existing buildings. Significantly, the recent tax reform also allows bonus depreciation on both used and new qualified property. Now, a taxpayer can purchase an existing property and break out the purchase price to include qualified property that would be eligible for bonus depreciation. Additionally, enhanced Section 179 expensing under the tax reform may provide advantages for improvements of real estate as well.

Counsel's role may include tax planning when representing investors in the acquisition, construction, and financing of commercial property including purchase price allocations and timing for the phaseout of bonus depreciation.

Listen as our authoritative panel discusses depreciation rules enacted under tax reform, including what constitutes qualified property for bonus depreciation and how it might affect deal structure. The panel will also analyze the interplay of bonus depreciation with NOL and interest deductions and timing issues associated with the gradual phaseout of the rules through 2026. Additionally, the panelists will discuss the impact of the CARES Act on depreciation deductions and losses.