Archives for August 2018

This month the IRS proposed new regulations on what will qualify for first-year depreciation deductions under the new tax plan.

This month, the IRS has proposed new regulations on additional first-year depreciation deductions, or bonus depreciation. The new regulations outline the qualifications and instructions for bonus depreciation, which was expanded under the new tax plan. This is the first of three sets of proposed regulations the IRS will suggest to implement the changes from the new tax plan.
“While first-year bonus deprecation has been around for many years, the Tax Cuts and Jobs Act made this break a bit more generous. Enacted in January of this year, the new tax bill generally provides that, for assets with a recovery period of 20 years or less, a taxpayer could elect to deduct 100%, previously the rate was 50% and only applied to new property,” Phil Jelsma, a partner and chair of the tax practice team at San Diego-based commercial real estate law firm Crosbie Gliner Schiffman Southard & Swanson LLP, tells GlobeSt.com. “Now, bonus depreciation applies to both new and used property used in a trade or business if placed in service after September 27, 2017 and before January 1, 2023. This generally includes all personal property, computer software and certain leasehold improvements as well as some real property improvements.”
For real estate assets, there are specific qualifications. According to Jelsma, the proposed regulations mandate: the depreciable property must be of a specified type, generally depreciable personal property with a recovery period of 20 years or less; the original use of the depreciable property must commence with the taxpayer, or used depreciable property must meet the acquisition requirements of Section 168(k)(2)(E)(ii); the depreciable property must be placed in service by the taxpayer within a specified time period or must be planted or grafted by the taxpayer before a specified date; and the depreciable property must be acquired by the taxpayer after September 27, 2017.
These proposed regulations include previously leased property as well. “The proposed regulations allow previously leased property to qualify for bonus depreciation—even if the lessee made improvements to the property—and enable the taxpayer to bifurcate the property between the previously owned improvements and the newly acquired property,” says Jelsma.
Jelsma recommends that all owners of property evaluate asset acquisitions after September 27, 2017 to determine if the property qualifies. “Identify property acquired after September 27, 2017 and determine if that property is eligible for bonus depreciation,” he says. “If buying out a partner or member, consider purchasing the partnership or membership interest rather than redeeming that interest to get bonus depreciation.”
LLC ownership structures will also benefit from the new regulations. “For property owned by a partnership or LLC in which the partnership or LLC interest is sold by a partner or member to another partner or member resulting in a basis adjustment for the purchaser the basis adjustment attributable to depreciable property may now be subject to bonus depreciation,” says Jelsma. “If the partnership or LLC buys out the partner’s or member’s interest, there is not a step-up eligible to bonus depreciation. If a new or existing partner or member buys the interest, there is a step-up with bonus depreciation.”
By: Kelsi Maree Borland (GlobeSt)
Click here to view source article.

The U.S. economy grew at a strong 4.2 percent annual rate in the April-June quarter, the best showing in nearly four years, as growth stayed on track to produce its strongest full-year gain in more than a decade. Strength in business investment offset slightly slower consumer spending.

The Commerce Department on Wednesday revised up its growth estimate for last quarter from an initial estimate of a 4.1 percent annual rate. The second quarter marked a sharp improvement from a 2.2 percent gain in the January-March period, though some of the strength last quarter came from temporary factors, including a surge in U.S exports before tariffs were to take effect.

Economists expect growth to slow to a still solid 3 percent annual rate the rest of the year, resulting in full-year growth of 3 percent for 2018. It would be the best performance since 2005, two years before the Great Recession began.

The 4.2 percent annual growth that the government estimated for last quarter is the strongest such figure since a 4.3 percent annual gain in the third quarter of 2014. The expectation of 3 percent growth for 2018 as a whole would be up from gains of 1.6 percent in 2016 and 2.2 percent last year.

Since the recovery began in mid-2009, growth has been sub-par, with annual gains averaging just 2.2 percent, making it the weakest recovery in the post-war period.

President Donald Trump often pointed to that fact during the 2016 presidential campaign to attack the economic record of the Obama administration. He has touted the pickup in growth, as measured by the gross domestic product, as evidence that his economic program of tax cuts, deregulation and tougher enforcement of trade agreements is working. Last month, Trump proclaimed that the GDP figure showed that the United States was now the “economy envy of the world.”

While forecasting solid growth of around 3 percent this year, economists contend that this performance is being pumped up for now by the $1.5 trillion tax cut Trump pushed through Congress last year, along with increased government spending. Many analysts say they think that those factors will begin to fade starting next year and that by 2020, growth may even slow enough to edge the economy close to a possible recession.

Gus Faucher, chief economist at PNC, said he foresees GDP growth this year of 3.4 percent, which he thinks will slow to 2.4 percent in 2019 and 1.6 percent in 2020 “as the fiscal stimulus from tax cuts and spending fades.”

Faucher said he thinks that continued interest rate hikes by the Federal Reserve will also act to slow growth. Trump has recently criticized the Fed, saying he is “unhappy” with its rate hikes, arguing that they pose a threat to the faster growth he is trying to fuel with his economic policies.

Some economists said Wednesday’s upward revision to GDP would give the Fed, which has already raised rates twice this year, leeway to do so twice more before year’s end, as it has signaled it expects to do.

“The economy’s good fortune is giving Fed officials the green light to take away the emergency stimulus left over from the recession and financial crisis a decade ago,” said Chris Rupkey, chief financial economist at MUFG Union Bank.

Trump administration officials reject outside forecasts that growth will inevitably slow after this year. They suggest that the Trump policies will unleash an economic boom that will deliver annual growth rates of 3 percent or better over the next decade.

Treasury Secretary Steven Mnuchin, in a CNBC interview Tuesday, pointed to the solid GDP performance in the spring as evidence that the administration is fulfilling Trump’s campaign promises regarding the economy.

“We are delivering on what was the president’s economic agenda about creating growth,” Mnuchin said.

Wednesday’s GDP report showed that consumer spending, which accounts for about 70 percent of economic activity, expanded at a strong annual rate of 3.8 percent in the second quarter, down slightly from an initial estimate of 4 percent growth in consumer spending. But that downward revision was outweighed by other factors including stronger business investment, which grew at a 6.2 percent rate, driven by spending on such items as computer software.

Other sources of strength were less growth in imports, which subtract from GDP, and faster growth in government spending at the federal and state and local levels.

By: Martin Crutsinger (ABQ Journal)
Click here to view source article.

Everyone has a hidden talent. For some, it is a performance skill such as singing or playing an instrument. For others, it’s a marketable skill like welding, baking, or artistry. And for many, it’s something simple but impressive – magic tricks, stunts, or the ability to cram 23 marshmallows into your mouth without choking. Whatever your particular talent, those who are meeting you for the first time can’t see that talent on the surface. You must spend time with someone and get to know them before unlocking what’s inside (People don’t cram marshmallows in their mouth for strangers). But these talents make people fun far beyond simple socialization. They make people unique and interesting.
Land is no different. And while I have never seen land sing or bake, I have seen many pieces of land with their own hidden talents, that is, attributes that make for hidden value sources for owners and sellers. Finding and taking advantage of these hidden talents can provide higher cash flow, a higher selling price, or even intrinsic benefits to landowners and sellers alike. Here are just a few examples of places to look for, and hopefully find, hidden value in you or your client’s property.

1. Mineral Rights

Oftentimes, people can’t see beyond, well, what they can see. What is contained below the surface is sometimes the most valuable part of the property. Mineral rights can be very lucrative depending on location or resource to be mined. This may be a value a buyer wants to tap right away or at some point in the future after an alternative use. For example, here in Florida there are pieces of land that are used for cattle grazing and then later for mining of phosphate. Still later, some of the phosphate land is reclaimed for reservoirs or even single-family homes. In a unique case, there is even a luxury golf course build on an old phosphate mine near Tampa (checkout streamsongresort.com. This may be one of the best examples of hidden value I’ve ever seen.) Mineral rights are tricky and investing in them somewhat speculative. But properly considered, their value is not to be dismissed. For a better understanding of mineral rights, try the RLI course on the subject.

2. Conservation Easements

This one gets a lot of debate. Some people would argue that this isn’t hidden value, as putting a conservation on your land restricts the use, therefore devaluing it. And while I don’t disagree that selling prices for encumbered land are necessarily lower than their unencumbered counterparts, the real question lies in property use. I’ve seen cattleman pursue easements that remove their development rights – but only on land their family has been running cattle on for 100 years that they would never think of selling. These easements include what are called “compatible use agreements” which allow them to continue running cattle at a reasonable volume. Money in their pockets, they continue to operate as they always have. It is important to understand not only your rights but also your obligations as the owner of easement land. But if those line up, the opportunity could be an attractive one.

3. Mulch

This is definitely a much smaller scale example but still worth mentioning. Do you have an area of trees on your property that you think is worthless? Hire someone to clear those trees and turn them into mulch. I have personally had clients who have collected thousands of dollars from just few acres of pine or cypress. You don’t have to have a section full of 15-year-old pines to realize value from trees. This is certainly not a good retirement plan. But for smaller areas with no real merchantable timber, mulching is an excellent option that will provide some income.

4. Leasing – Hunting, fishing, camping, ATV riding

Again, not a lottery ticket here, but you don’t always need thousands of acres to provide a recreational area for someone. I’ve seen people lease as little as 10 acres for people to ride ATVs or dirt bikes on and as little as 100 acres for people to hunt on. Usually, these are vacant land pieces within 30 min or so of a city for people to just enjoy the outdoors. Sometimes referred to as “play land”, pieces like these provide the city-dwellers an opportunity to get away, get dirty, and enjoy some fresh air. Some landowners even provide limited use of their land free of charge to non-profit organizations. Not only is this great community involvement, but could also provide an opportunity to deduct the fair market value of that use for tax purposes (Not offering tax advice. Consult your CPA J).
Whether your property can swish an over-the-shoulder 3-pointer or do a double back flip off the diving board, it’s got something valuable that isn’t obvious. Take some time to find that value for yourself or your client for maximum property benefit.
What? Oh, me?? I play the piano. Happy to bang out Don’t Stop Believin’ for you anytime.
By: Caleb McDow (RLI)
Click here to view source article.
 

The University of New Mexico generates $3.1 billion in economic output annually – the bulk of it from operational spending, according to a new analysis released Tuesday.
But the $3.1 billion figure also includes impact of alumni in the workforce, spending by out-of-state students, and UNM’s technology transfer and economic development activities. The report’s author Kelly O’Donnell said that makes it the most “comprehensive” examination of how UNM affects the state’s economy.
Those categories accounted for a total of 24,985 jobs and $3.5 billion in annual employee compensation in fiscal year 2017, according to the report.
“UNM is absolutely vital to New Mexico’s economic growth,” O’Donnell said.

UNM President Garnett Stokes announced the numbers in the Lobo Rainforest Building at the Downtown Innovate ABQ site, calling UNM “one of the state’s most valuable assets.”
“Pretty major news,” she said of the $3.1 billion figure. “Maybe we already knew it, but now we have it quantified what the University of New Mexico – what the university for New Mexico – means for our community here and for the state.”
STC.UNM, the university’s economic development and tech transfer organization, commissioned O’Donnell, a UNM research assistant professor, to conduct the analysis using a grant from the New Mexico Gas Company.
O’Donnell said economic output is a “measure of productivity,” likening it to gross domestic product.
UNM, which has an annual budget of approximately $3 billion, spent $2.2 billion on operations in fiscal year 2017. That includes about $1.4 billion for employee pay and benefits, according to the report.
But only expenditures made in New Mexico with funds coming from outside the state count toward the economic impact figure.
Nearly half of UNM’s operational revenue ($1.1 billion) comes from beyond the state’s borders. That generates $2.1 billion in direct, indirect and induced effects, according to the report.
Most of the incoming money is tied to clinical services provided by UNM Hospital and the UNM Medical Group, where approximately 65 percent of the payments come from Medicaid or Medicare.
“That is obviously hugely beneficial” because those programs are funded mostly or entirely by the federal government, O’Donnell said.
But the incoming revenue also comes from federal grants, out-of-state students’ tuition and other sources.
In addition to the $2.1 billion in economic output from operational spending, UNM’s impact includes:
• $933 from alumni income
• $79 million from out-of-state student spending
• $56 million from technology transfer
The report noted that degrees increase career earnings, giving alumni more money to spend and pay in local and state taxes.
UNM graduates residing in New Mexico earn about $2.3 billion more every year than they would have with only a high school diploma, according to the report.
However, while UNM draws about 83 percent of its student body from New Mexico, only about 58 percent of its 184,000 living alumni have New Mexico addresses currently, indicating that many of them leave.
Stokes said it is not unusual for a state’s flagship university to see its graduates seek and find opportunities elsewhere in the country or the world, but that such losses concern many around New Mexico.
“Over and over again what I’m hearing from many different constituents is the desire to reduce the amount of brain drain, and some of that is making sure that the talent that we have in New Mexico decides to stay in New Mexico to go to school to earn a bachelor’s, master’s or doctorate or professional degree,” said Stokes, who recently completed a statewide tour that included stops in all 33 counties. “But another part of that is trying to make sure we are proving that the state has ample opportunities for those graduates to actually stay and have successful careers and lives in New Mexico.”
Other findings from the new report:
• Nonresident student spending supported 822 full and part-time jobs;
• UNM had more than $300 million in contract and grant funding in 2017, including $247.7 million from the federal government;
• STC.UNM-affiliated startup companies employed about 247 New Mexicans in 2017 and generated $32.2 million in total output.
By: Jessica Dyer (ABQ Journal)
Click here to view source article.