As the tax deadline draws near here are a few more tax savings ideas for your consideration. As always, contact your Frazer LLP tax advisor in Brea (714.990.1040) or Visalia (559.732.4135) with any questions or to determine if you qualify.
Taking advantage of tangible property safe harbors
If your business has made repairs to tangible property, such as buildings, machinery, equipment and vehicles, you may be eligible for a deduction on your 2014 income tax return. But you must make sure they were truly “repairs,” and not actually “improvements.”
Why? Costs incurred to improve tangible property must be depreciated over a period of years. But costs incurred on incidental repairs and maintenance can be expensed and immediately deducted. Distinguishing between repairs and improvements can be difficult, but a couple of IRS safe harbors can help:
Routine maintenance safe harbor. Recurring activities dedicated to keeping property in efficient operating condition can be expensed. These are activities that your business reasonably expects to perform more than once during the property’s “class life,” as defined by the IRS.
Small business safe harbor. For buildings that initially cost $1 million or less, qualified small businesses may elect to deduct the lesser of $10,000 or 2% of the unadjusted basis of the property for repairs, maintenance, improvements and similar activities each year. (A qualified small business is generally one with gross receipts of $10 million or less.)
Contact us to ensure that you’re taking all of the repair and maintenance deductions you’re entitled to.
You might benefit from deducting investment interest expense on your 2014 tax return
Investment interest — interest on debt used to buy assets held for investment, such as margin debt used to buy securities — generally is deductible for both regular tax and alternative minimum tax purposes. But special rules apply that can make the deduction less beneficial than you might think.
Your investment interest deduction is limited to your net investment income, which, for the purposes of this deduction, generally includes taxable interest, nonqualified dividends and net short-term capital gains, reduced by other investment expenses. In other words, long-term capital gains and qualified dividends aren’t included. However, any disallowed interest is carried forward, and you can deduct it in a later year if you have excess net investment income.
You may elect to treat net long-term capital gains or qualified dividends as investment income in order to deduct more of your investment interest. But if you do, that portion of the long-term capital gain or dividend will be taxed at ordinary-income rates.
If you’re wondering whether you can claim the investment interest expense deduction on your 2014 return, please contact us. We can run the numbers to calculate your potential deduction — or to determine whether you could benefit from treating gains or dividends differently to maximize your deduction.
New rules for partial disposal of commercial property
If you own commercial real estate you have a unique, one-time opportunity to create significant increased cash flow. The time to act is limited to the 2014 tax year filing deadline.
Under the new IRS rules, effective January 1, 2014, owners of commercial real estate can now assign a value to the 39-year components that are replaced and write-off and treat as a deductible expense the remaining adjusted tax basis. These Partial Dispositions can be taken during the current tax year.
To learn about the key aspects of this new law,