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Significant Tax Legislation Affecting Real Estate

Significant tax legislation was recently passed by Congress and signed into law by President Obama. Here is a brief summary of the key tax provisions of the legislation that affect the real estate sector:

EXTENSION OF BONUS DEPRECIATION: TEMPORARY 100 PERCENT EXPENSING FOR CERTAIN BUSINESS ASSETS  

  1. Increases additional first-year depreciation to 100 percent for qualified property acquired by the taxpayer after September 8, 2010, and placed in service before January 1, 2012 (January 1, 2013, in the case of certain long production period property or aircraft). This provision generally applies to new personal property and qualified leasehold improvements.
  2. Extends 50 percent additional first-year depreciation for qualified property placed in service after December 31, 2011 and before January 1, 2013 (January 1, 2014 in the case of certain long production period property or aircraft).
  3. Extends 15-year straight-line cost recovery for qualified leasehold, restaurant, and retail improvements and new restaurant property through 12/31/11.

TEMPORARY EXTENSION OF INCREASED SMALL BUSINESS EXPENSING 

  1. For tax years beginning in 2012, the dollar limitation of expensing costs under Section 179 will be $125,000 for assets placed in service by the taxpayer after January 1, 2012, and $25,000 for taxable years after 2012. Without the new law, the dollar limitation would have been $25,000 for all tax years after 2011.
  2. The threshold has been increased to $500,000 in the case of taxable years beginning in 2012, and $200,000 in the case of taxable years beginning after 2012.
  3. Qualified property under Section 179 will no longer include qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.

TEMPORARY EXTENSION OF CERTAIN EXPIRING PROVISIONS 

Extends the New Energy Efficient Home Credit to qualified new energy efficient homes acquired before December 31, 2011.

EXTENSION OF GRANTS FOR SPECIFIED ENERGY PROPERTY IN LIEU OF TAX CREDITS 

Grants for specified energy property in lieu of tax credits under Subsection (a) of section 1603 of division B of the American Recovery and Reinvestment Act of 2009 have been extended to December 31, 2011.

ENERGY EFFICIENT APPLIANCE CREDIT 

In 2010, a manufacturer could qualify for a credit for certain energy efficient appliances produced in the U.S. during the calendar year ending with or within the taxable year. The 2010 Tax Relief Act extends the energy efficient appliance credit for one year.

CREDIT FOR NONBUSINESS ENERGY PROPERTY 

  1. ExtendsNonbusiness Energy Property Credit to 2011
  2. Allows as a credit against the tax imposed an amount equal to the sum of:
  3. 1) 10 percent of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during such taxable year, and 2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during such taxable year.
  4. Lifetime limitation
  5. There are various lifetime limitations for different property expenditures which limit the cumulative benefits allowed for these credits.

SEVEN-YEAR RECOVERY PERIOD FOR MOTORSPORTS ENTERTAINMENT COMPLEXES 

Extends seven- year recovery period for Motorsports entertainment complexes to property placed in service before December 31, 2011

EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS 

A taxpayer may elect to treat any qualified environmental remediation expenditure which is paid or incurred by the taxpayer as an expense through December 31, 2011.

INCREASE IN REHABILITATION CREDIT IN GULF OPPORTUNITY ZONE 

Extends rehabilitation credit for qualified rehabilitation expenditures paid or incurred through December 31, 2011, with respect to any qualified rehabilitated building or certified historic structure located in the Gulf Opportunity (GO) Zone

LOW-INCOME HOUSING CREDIT RULES FOR BUILDINGS IN GO ZONE 

Extends additional housing credit for GO Zone through December 31, 2011.

BONUS DEPRECIATION DEDUCTION APPLICABLE TO THE GO ZONE 

Bonus depreciation deduction applicable to the GO Zone has been extended through December 31, 2011.

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