Questions Taxpayers Should Ask Tax Advisor About Cost Recovery Tax Reform Rules

By Don Warrant, CPA on March 19, 2018
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Don Warrant, CPA

Director | Tax Practice


12 Questions Taxpayers Should Ask Their Tax Advisor About New Cost Recovery Rules

How real property owners can take advantage of the latest tax minimization opportunities

If you are a real property owner, your 2017 and 2018 tax planning and return preparation will be impacted by changes to tax reform cost recovery rules resulting from thenew Tax Cuts and Jobs Act.

You’ll be faced with a few key questions related to cost recovery like whether to depreciate or expense property, whether to capitalize repairs in conformity with book treatment or expense, and whether to claim bonus depreciation or to elect not to claim bonus depreciation for any class of property – all items to discuss with your tax advisor.

changes to federal cost recovery

We also recommend that you ask your advisor to discuss the following tax minimization opportunities – and challenges – with you:

Tax Reform Impact on Section 179 Expensing

Here’s my recommendation for 3 questions about Sec 179 expensing to discuss with your CPA:

  1. 1. What affect does expensing have on the QBI deduction that applies to non-corporate taxpayers beginning with the 2018 tax year?  

    2. What affect does expensing have on federal or state tax credits?

    1. 3. When will the recapture period lapse?   

Tax Reform Impact on Bonus Depreciation

Here’s my recommendation for 3 questions about bonus depreciation to discuss with your CPA:

1. Will my federal tax deduction be limited by my tax basis or the passive activity loss rules?

2. Will I owe more state tax by claiming bonus depreciation?

  1. 3. What impact does bonus depreciation have on renovations of existing buildings vs. new building construction?

Tax Reform Impact on Recovery Periods

Here’s my recommendation for 3 questions about recovery periods to discuss with your CPA:

Can I reduce or eliminate my current year taxable income by:

1. Reclassifying capitalized costs from 27.5 or 39-year recovery periods to 5-year, 7-year, and 15-year recovery periods, going back to 1986?  

  1. 2. Changing the recovery periods of other tangible property that should have been assigned to a shorter recovery period?

3. Changing from depreciating to deducting the remaining tax basis in property abandoned in prior years?

Passenger Automobiles

Here’s my recommendation for 3 questions about passenger automobiles to discuss with your CPA:

1. Should I trade-in or sell outright?

  1. 2. Should I replace with a heavy truck or SUV to avoid the depreciation limitations that apply to passenger automobiles?
  2. 3. Will I owe more state tax if I expense or deduct the full cost of a heavy truck or SUV?

Connect with a Freed Maxick Tax Expert

In addition to changes made to cost recovery rules, the new tax act contains a wide variety of opportunities for corporate and individual taxpayers to minimize their Federal tax obligations. Click here or call our tax team at 716.847.2651 to schedule a complimentary review of your situation today.

For more insight, observations and guidance on the new Tax Cuts and Jobs Act, visit our Tax Reform webpage.

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