Real Estate Forecast 2011 Major Tax Law Changes Peter J. Chudyk, CPA, JD Christopher B. Anderson, CPA

What We Will Cover Provisions in the Small Business Jobs Act of 2010 (SBJA) Provisions in the Small Business Jobs Act of 2010 (SBJA) Provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 Provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 Update on other tax reporting issues Update on other tax reporting issues

SBJA of 2010 Section 179 expensing changes, including certain real property Section 179 expensing changes, including certain real property Extension of bonus depreciation Extension of bonus depreciation New 1099 reporting rules for recipients of rental income from real estate New 1099 reporting rules for recipients of rental income from real estate

Section 179 Changes SBJA increased amount to $500,000 from $250,000 SBJA increased amount to $500,000 from $250,000 Phase-out increased from $800,000 to $2,000,000 (complete phase-out at $2,500,000) Phase-out increased from $800,000 to $2,000,000 (complete phase-out at $2,500,000) For tax years 2010 and 2011 For tax years 2010 and 2011

Section 179 Changes Qualifying property: depreciable tangible personal property used in trade or business Qualifying property: depreciable tangible personal property used in trade or business Includes off-the-shelf computer software Includes off-the-shelf computer software Election for certain depreciable real property Election for certain depreciable real property

Section 179 Changes Certain depreciable real property: Certain depreciable real property: -Qualified leasehold improvements -Qualified restaurant property -Qualified retail improvement property Be careful about what does and does not qualify Be careful about what does and does not qualify

Section 179 Changes Qualified real property expense limit: $250,000 Qualified real property expense limit: $250,000 Pro-rata allocation for real property and personal property Pro-rata allocation for real property and personal property Carryover of real property deduction allowable only when real ppty. still included in Sec.179 definition Carryover of real property deduction allowable only when real ppty. still included in Sec.179 definition

Bonus Depreciation 50% of basis of qualifying property can be expensed 50% of basis of qualifying property can be expensed Placed in service by 12/31/2010 Placed in service by 12/31/2010 Generally, MACRS property with recovery period of 20 yrs or less Generally, MACRS property with recovery period of 20 yrs or less -Certain other property qualifies First use of property First use of property

Tax Relief Act of % bonus depreciation for certain property placed in service after 9/8/2010 and before 1/1/ % bonus depreciation for certain property placed in service after 9/8/2010 and before 1/1/2012 Thus, 50% for 1/1/10 to 9/8/10 and 100% for 9/9/10 to 12/31/11 Thus, 50% for 1/1/10 to 9/8/10 and 100% for 9/9/10 to 12/31/11

1099 Reporting Changes Trade or business payments of $600 or more to certain recipients Trade or business payments of $600 or more to certain recipients Beginning 1/1/2011, “trade or business” includes real property rental Beginning 1/1/2011, “trade or business” includes real property rental Service providers like management company, plumbers, lawyers, etc. Service providers like management company, plumbers, lawyers, etc.

1099 Reporting Changes Payments to corporations are generally excluded (there are exceptions) until 2012 Payments to corporations are generally excluded (there are exceptions) until : payments of $600 or more to corporations for goods and services are reportable on Form 1099-MISC 2012: payments of $600 or more to corporations for goods and services are reportable on Form 1099-MISC -Reporting done in 2013

Other Provisions Cell phones are no longer “listed property” Cell phones are no longer “listed property” -No tax effects for personal use -Logs no longer required -Effective 1/1/2010

Tax Relief Act of 2010 Extension of “Bush era tax cuts” for 2 years (2011 and 2012) Extension of “Bush era tax cuts” for 2 years (2011 and 2012) -Top individual tax rate: 35% -Long-term cap. gain rate: 15% -Qualified dividends: 15% -AMT patch

Tax Relief Act of 2010 Extension of “Bush era tax cuts”: Extension of “Bush era tax cuts”: -Election of state sales tax deduction vs. state income taxes (2011) -Favorable phase-out rules for personal exemptions and itemized deductions extended

Tax Relief Act of 2010 Employee’s Social Security tax rate for 2011 reduced from 6.2% to 4.2% Employee’s Social Security tax rate for 2011 reduced from 6.2% to 4.2% -Applies for Self Employment Tax also (from 12.4% to 10.4%) New markets tax credit extended through 12/31/2011 New markets tax credit extended through 12/31/2011

Estate Tax Update Top estate tax rate: 35% for 2010, 2011 and 2012 Top estate tax rate: 35% for 2010, 2011 and 2012 Exemption: $5 million (estate & gift) Exemption: $5 million (estate & gift) Estate tax retroactively reinstated for 2010 unless estate makes special election Estate tax retroactively reinstated for 2010 unless estate makes special election Election: carryover basis Election: carryover basis