Maximize your 2013 depreciation deductions with a cost segregation study

If you’ve recently purchased or built a building or are remodeling existing space, consider a cost segregation study. It identifies property components and related costs that can be depreciated much faster, perhaps dramatically increasing your current deductions. Typical assets that qualify include decorative fixtures, security equipment, parking lots and landscaping.

The benefit of a cost segregation study may be limited in certain circumstances, such as if the business is subject to the alternative minimum tax or is located in a state that doesn’t follow federal depreciation rules.

For more information on cost segregation studies — or on other strategies to maximize your 2013 depreciation deductions — contact us today.

Why you should max out your 2013 401(k) contribution

Contributing the maximum you’re allowed to an employer-sponsored defined contribution plan, such as a 401(k), 403(b) or 457 plan, is likely a smart move:

• Contributions are typically pretax, reducing your modified adjusted gross income (MAGI), which can also help you reduce or avoid exposure to the new 3.8% Medicare tax on net investment income.
• Plan assets can grow tax-deferred — meaning you pay no income tax until you take distributions.
• Your employer may match some or all of your contributions pretax.

For 2013, you can contribute up to $17,500 — plus an additional $5,500 if you’ll be age 50 or older by Dec. 31.
If you participate in a 401(k), 403(b) or 457 plan, it may allow you to designate some or all of your contributions as Roth contributions. While Roth contributions don’t reduce your current MAGI, qualified distributions will be tax-free. Roth contributions may be especially beneficial for higher-income earners, who are ineligible to contribute to a Roth IRA.

Expiration date for home mortgage debt forgiveness rapidly approaching

Since 2007, homeowners have been allowed to exclude from their taxable income up to$2 million in cancellation-of-debt (COD) income ($1 million for married taxpayers filing separately) in connection with qualified principal residence indebtedness (QPRI). The exclusion had been available only for debts forgiven through 2012, but Congress extended it. Now that expiration date — Dec. 31, 2013 — is rapidly approaching.

You can have COD income if a creditor forgives a debt, reduces the interest rate or gives you more time to pay or in connection with a mortgage foreclosure, including a short sale or deed in lieu of foreclosure. QPRI means debt used to buy, construct or substantially improve your principal residence, and it extends to the refinance of such debt. Relief isn’t available for a second home, nor is it available for a home equity loan or cash-out refinancing to the extent the proceeds are used for purposes other than home improvement.

If you’re considering a mortgage foreclosure or restructuring in relation to your home, you may want to act before year end to take advantage of the COD income exclusion in case it’s not extended again.

IRS issues final regs on tangible property expenses

The regulations (IRS T.D. 9636) provide guidance on how to comply with Sections 162 and 263 of the Internal Revenue Code. These sections require amounts paid to acquire, produce or improve tangible property to be capitalized but allow amounts for incidental repairs and maintenance of property to be deducted — potentially saving you more tax in the current year.

The final regs explain how to distinguish between capital expenditures and deductible business expenses. They replace temporary regs issued in 2011, but they retain many of the temporary regs’ provisions. In addition, they modify several sections and create a number of new safe harbors.

The final regs generally will apply to tax years beginning on or after Jan. 1, 2014. They affect all businesses that own or lease tangible property, including buildings, machinery, vehicles, furniture and equipment.

If you have expenditures related to tangible property, the final regs apply to you. Compliance may require changes to your current capitalization procedures and the filing of Form 3115, “Application for Change in Accounting Method.” If you have questions regarding the final regulations and how to best proceed, we’d be happy to help.