American Society of Cost Segregation Professionals

15 Years of Service to the Industry

2006-2021
15 Years of Service to the Industry
  • Home
  • About
    • Contact / Ask ASCSP
    • Board of Directors & Committee Chairs
    • Bylaws
    • Code of Ethics
    • History
    • Honorary Members of the Society
    • Volunteers of the Year
  • Certification & Testing
    • Introduction
    • About the Exam
    • Advancement Testing Experience Report
    • Certification Matters…..
    • Ready to Test?
  • Education & Technical Standards
    • Education Committee
    • Technical Standards Committee
    • Webinars
      • Webinars
      • Technical Webinar Recordings & Topics
  • Membership
    • Introduction
    • Membership Benefits
    • How to Join
    • 2021 Membership renewal
      • Pay 2021 dues
  • Member Directory
  • Links & Resources
    • ASCSP Member Articles
      • Proposed 1031 Regs Should Not Materially Impact Cost Segregation Benefits
      • CARES Act Provides Tax Benefits for Real Estate Investors: Fix for Qualified Improvement Property and Changes to Net Operating Loss Rules
      • Dispositions: IRS Increases Scrutiny for a Valuable Tax Strategy
      • Why Qualified Opportunity Funds Should Consider Cost Segregation
      • The Interplay of Cost Segregation with the Historic Tax Credit
      • Introduction to this new publication series.
      • Cost Segregation Articles from Member’s Firms
      • Court Cases
        • La Petite Academy vs. United States
        • Eastwood Mall
    • ASCSP Quarterly Blog – sign up
    • ASCSP Cost Segregation Dictionary
    • Career Center
    • Minimum Quality Standards publication
    • Presenters Proposal Form
    • Partnering Organizations
    • Conferences past
      • Conference 2019- New Orleans
        • 2019 Conference Agenda
        • Conference Map
        • 2019 Conference Presentations
        • 2019 Registration, CPE & Exam Info
        • Slido Information
        • CPE Credits FOR 2019
        • 2019 Conference – General Information
          • Conference 2019- memories
          • ASCSP Golf Outing
          • SPONSORS
            • 2019 Conference – SPONSOR- Quire
      • 2018 Conference – Nashville
        • 2018 CONFERENCE – SPONSORS
        • 2018 Conference Agenda
          • CPE Credits
          • 2018 Presenter’s Bios
          • 2018 Conference Backpack
          • 2018 Conference photos
          • 2018 Conference Presentations
      • Conference Topics By Year – 2008-2018
      • Learning Summit 2020
        • Agenda- Cost Segregation Learning Summit
          • Presenters Bios – CSLS
          • 2020 Registration
          • 2020 Guest Accommodations
          • Golf Outing
  • Conference 2021

Proposed 1031 Regs Should Not Materially Impact Cost Segregation Benefits

Submitted by: Gian Pazzia CCSP- Past President ASCSP.
KBKG Tax Insight: Proposed 1031 Regs Should Not Materially Impact Cost Segregation Benefits
Last week, the IRS has issued proposed regs that define what real property is for purposes of 1031 exchanges.  This became necessary due to changes in the Tax Cuts and Jobs Act (TCJA) that no longer allows personal property from being eligible for 1031 exchange.  To address complications due to the inherent personal property included in a real property exchange (e.g., from cost segregation studies), the proposed regs provide a rule addressing personal property that is incidental to the purchase of real property received in the exchange. 
KBKG Insight:The definition of personal property and real property for Section 1031 purposes has been a source of confusion for many years for taxpayers who conduct cost segregation studies of real property. Most cost segregation experts have historically interpreted the definition of real property and personal property for 1031 rules are different than definitions under depreciation rules.  These proposed regs offer clarity by indicating these definitions for 1031 purposes should not rely on the definitions used for deprecation purposes. 
As many tax professionals read the proposed regs, it may first appear that cost segregation studies may cause problems if a taxpayer intends to exchange the property in the future.  However, upon deeper analysis, this is not the case.  The proposed regs provide that personal property which is incidental to replacement real property is disregarded.  Personal property is incidental to real property acquired in an exchange if, in standard commercial transactions, the personal property is typically transferred together with the real property, and the aggregate fair market value of the incidental personal property transferred does not exceed 15 percent of the aggregate fair market value of the replacement real property. 
KBKG Case Study: A property is sold in a Sec. 1031 exchange for $10 million with a corresponding land value of $3 million and building value of $7 million. A cost segregation study was performed on that building resulting in the following allocations:
5 & 7-year property                            $1.4 million (20%)
15-year land improvements                $1.05 million (15%)

39-year property                                 $4.55 million (65%)
The replacement property is purchased for $10 million.  The “incidental” rule would disregard any personal property up to 15% of the total purchase price of the new property, or $1.5 million, making this a valid exchange under the proposed 1031 regulations.
KBKG Insight: Even though this is considered a valid exchange under the proposed regulations, taxpayers must still match or exceed personal property values in the new property in order to avoid 1245(b)(4) recapture tax. This has been an issue for many years before these proposed regulations and can be avoided with careful planning. 
When considering that most taxpayers tend to “exchange up,” meaning their replacement property is generally purchased for more than the sale price of relinquished property, there is… » READ MORE

Cost segregation

Definition

March 2021
M T W T F S S
1234567
891011121314
15161718192021
22232425262728
293031  
     

Copyright © 2021 · American Society of Cost Segregation Professionals ·

MWT