Mueller Prost Year-End Tax Planning

Year-End Tax Planning Webinar:

This page does not include all of the takeaways from the webinar. For full value, request access to the webinar recording below.

Major Topics:

Capital Expenditures ‐ Bonus Depreciation & §179

Criteria for bonus‐qualified assets

• Property with recovery period of 20 years or less
• Computer software
• Water utility property
• Qualified film, TV and theatrical production costs
• Certain aircraft (not used in a transportation business)

Common disqualifiers

• Building & its structural framework (39 year property)
• Note: Elevators/escalators are considered “structural”
• New expansions to an existing building
• Qualified improvement property
• Residential property (27.5 years)
• Deposits or receipt of property, but not placed in service

Section 179

• Annual tax write‐off Sec. 179 limit is $1,020,000 million for 2019
• Taxable income limitation ‐ cannot produce a loss
• Criteria for Section 179 assets
  • Tangible personal property: machinery, equipment, furniture,

computers, etc.

• Computer software
• Qualified improvement property
• Roofs, HVAC, fire protection, alarm and security systems

Business Vhicles/Listed Autos

• Annual depreciation caps for luxury (listed) passenger vehicles
  • 1st year in service ‐ $10,100
  • 2nd year in service ‐ $16,100
  • 3rd year in service ‐ $9,700
  • 4th year and beyond in service ‐ $5,760
• Additional $8,000 first year depreciation for qualified listed property (eligible for bonus) extended through 12/31/2026
• Autos, trucks and vans used more than 50% for business to qualify for bonus or Section 179

Fixed Asset/Depreciation Reminders

• Consider cost segregation study to shorten lives on improvements to real property
• Mid‐quarter convention applies if more than 40% of the assets are acquired in the 4th quarter
• Heavy use vehicles with gross weight over 6,000 pounds are eligible for Section 179
• SUVs limited to $25,500 of Section 179
• Elect out of bonus depreciation based on class of assets
• States may not follow on bonus depreciation or Section 179

Flow‐Through Deduction: §199A

Untangling Tax and Regulatory Reform

• Only trade or business income gets the 20% break
• Triple net leases to outside third parties do not normally get the §199A 20% tax break
• But, triple net lease properties leased to controlled entities (think 50% or more common ownership) can get the break unless renting to a SSTB

Interest Expense Limitation ‐ §163(j)

There is a new limit!

• 30% of Adjusted Taxable Income (ATI)
• Plus business interest income
• Plus floor plan interest expenses

What is interest expense?

• Debt issuance costs
• Loan commitment fees
• Hedging costs

How do calculate ATI?

• Taxable income plus:
  • Business interest expense
  • NOL
  • 199A
  • Depreciation, amortization, and depletion (gone in 2022)
  • Non-business income or loss

Exceptions

• Any company with the prior 3 years average annual gross receipts under $26 million
• Tax shelters (any entity that allocates more than 35% of tax losses to limited entrepreneurs, or someone that is not active in the business) don’t get this exception