Page 65 - BusinessWest October 12, 2020

Seeking Relief
CARES Act Provides Numerous Tax-planning Opportunities
OBy Lisa White and Malik Javed
n March 27, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law. The Act has provided taxpayers with much-needed relief during this
pandemic by establishing additional funding sources, such as the Paycheck Protection Program (PPP); by creating new tax credits, such as the Employee Retention Credit; and by significantly chang- ing several existing tax provisions.
When reviewing what relief is available, taxpayers should consider all possible opportunities, including cost-segregation studies, which help identify misclassified Qualified Improvement Property (QIP); by review- ing current- and prior-year capital expenditures for retirements, dispo- sitions, or repair deductions; and by considering accounting-method changes necessary to take full advantage of the new provisions in the
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Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Freedom Credit Union and FCU Investment Services are not registered as a broker-dealer or investment advisors. Registered representatives of LPL offer products and services using FCU Investment Services and may also be employees of Freedom Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of Freedom Credit Union or FCU Investment Services. Securities and insurance offered through LPL or its affiliates are:
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LISA WHITE
MALIK JAVED
“The Act has provided taxpayers with much- needed relief during this pandemic by establishing additional funding sources.”
tax law.
Two key changes to existing tax law within the CARES Act that pro-
vide cash flow for taxpayers include changes to the cost-recovery period for QIP and changes to the application and recognition of Net Operat- ing Losses (NOLs).
Qualified Improvement Property
Qualified Improvement Property (QIP) is defined as any improve- ment made by the taxpayer to an interior portion of a commercial building as long as the improvement is placed into service after the building was first placed into service by any taxpayer. Additionally, QIP specifically excludes expenditures for the enlargement of a build- ing, elevators or escalators, and the internal structural framework of a building.
Prior to the CARES Act, a drafting error in the tax law required QIP placed in service after Dec. 31, 2017 to use a 39-year tax life, making it ineligible for bonus depreciation. The CARES Act retroactively changed the recovery period for QIP to 15 years, thus making it eligible for bonus depreciation through 2026 (100% through 2022).
Taxpayers who want to take advantage of deducting the cost of improvements to real estate must segregate between interior and exte- rior improvements, as well as identify items excluded from QIP. Since budgets and design plans should be reviewed to identify these items, cost-segregation engineers can be engaged to assist with this analysis.
Tenant improvements often include items that are not eligible for QIP treatment. For example, HVAC costs in a retail shopping center might include both ductwork inside the building that is eligible for QIP and package units on the roof that are not eligible. Other examples include certain storefronts and interior seismic retrofits. When evaluat- ing QIP, taxpayers should not assume all tenant improvements auto- matically qualify. Although QIP is now eligible for 100% bonus depre- ciation for federal income taxes, many states do not conform to bonus
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