Commercial Investment Real Estate March/April 2013 - Page 35

Individuals and married couples with adjusted gross incomes greater than $400,000 and $450,000 respectively will be subject to a top marginal rate of 39.6 percent on ordinary income and 20 percent tax rate on capital gains and dividends. improvement properties. Additionally, Section 179 is limited in the case of luxury autos and some SUVs. Another limitation of Section 179 is that it is not allowed on leased property except in very limited instances. Depreciation Changes AMT Amounts Permanent From a business standpoint, ATRA extends several popular tax breaks that relate to real estate, most notably, the 50 percent bonus depreciation allowance under Internal Revenue Code Section 168(k) for qualif ed property acquired and placed in service prior to Jan. 1, 2014 (Jan. 1, 2015, for certain longer-lived and transportation prop- erty). Qualif ed property is generally def ned as new property with a useful life of less than 20 years, computer sof ware, water utility property, or qualif ed leasehold improvement property. ATRA also revives the rule treating qualif ed leasehold improve- ments as 15-year property, thus making such property eligible for bonus depreciation. Consult with a certif ed public accountant or other tax professional for questions regarding what property falls within the Internal Revenue Service’s def nition of qualif ed leasehold improvements. Perhaps the most signif cant ef ect ATRA has in regard to the 2012 tax year is that ATRA increases the Alternative Minimum Tax exemp- tions for all taxpayers on a permanent basis. Previously, Congress would “patch” the AMT problem every year by increasing the AMT exemption for that tax year only. T is permanent change will prevent many taxpayers from owing additional tax with their 2012 income tax returns. For 2012, the AMT exemption amount increases from $33,750 to $50,600 for single taxpayers, $45,000 to $78,750 for taxpay- ers married f ling joint returns, and $22,500 to $39,375 for married taxpayers f ling separate returns. Going forward, the AMT exemption amounts will be adjusted annually for inf ation. Medicare Contribution Tax T e new 3.8 percent tax imposed by the Af ordable Care Act took ef ect Jan. 1, 2013. T is tax applies to taxpayers with AGIs greater Qualifi ed Leasehold Improvements than $200,000 if single and $250,000 if married. T e tax is imposed Qualif ed leasehold improvements are depreciated over a 15-year on the lesser of the net investment income or the amount of AGI over life and are eligible for 50 percent bonus depreciation. Qualif ed the threshold limit. Net investment income includes interest income, leasehold improvements are def ned as any improvement to an dividends, rental income, and capital gains on the sale of property, interior portion of a building that is nonresidential real property among other types of passive income. However, the gain on sale of trade or business assets does not qual- if the improvement is made pursuant to a lease (generally) by the lessee (or any sublessee), and the improvement is placed in service ify as net investment income. T us, if a taxpayer is actively involved in a trade or business that is sold, the gain on the sale more than three years af er the date the building was of the business (even if some of the gain is capi- f rst placed in service. Certain improvements are not CCIM included, such as any improvement that enlarges the tal) is not subject to the 3.8 percent on investment building, adds an elevator or escalator,  or adds any income. As such, rental income is not considered INSTITUTE structural component benef ting a common area or net investment income if the rents are earned as AND THE the internal structural framework of the building. part of a trade or business activity, and if the tax- T is can be a signif cant benef t to landlords making payer actively participates in the activity. NATIONAL improvements under long-term leases. Remember that most of these changes af ect the ASSOCIATION 2013 tax year and will not be ref ected in this year’s OF REALTORS Section 179 Expensing return for 2012. However, some of the “permanent” ATRA also retroactively increases IRC Section 179 PROVIDE MORE changes enacted by ATRA are not necessarily per- maximum expensing amounts for 2012 from $139,000 manent if Congress decides to overhaul the entire INFORMATION to $500,000. Ef ective for 2013, ATRA increases the tax code this year. Given the ongoing f scal dis- Section 179 maximum expensing amount from cussions, more changes af ecting taxpayers could ON THE $25,000 to $500,000. After 2013, the maximum materialize later this year. FOLLOWING expensing amount is again scheduled to drop to TOPICS. $25,000. T is opens a window of opportunity for sub- Shelly B. LaGroue, CPA, is a member of the certi- American Taxpayer stantial write-of s during 2013 for certain equipment fi ed public accounting fi rm Forwood & LaGroue in Mobile, Ala. Contact her at slagroue@forwoodandla- Relief Act of 2012 associated with the development of real estate. C. William Barnhill, CCIM, is president The expansion of benefits under Section 179 of Omega Properties in Mobile. Contact him at barn- is good news for businesses and individuals who Patient Protection and invest in personal property. However, Section 179 T is article is designed to provide information Affordable Care Act applies only to personal property and qualif ed real property, such as qualif ed leasehold improvements, in regard to the subject matter and should not be qualif ed restaurant property, and qualif ed retail considered accounting, tax, or legal advice. March | April | 2013 33