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Low inflation contributed to a five cent drop in standard business mileage reimbursement rate for 2010. Effective January 1, 2010, the mileage reimbursement rate for business and medical and moving expenses have changed, but the mileage rate for charitable organizations has remained the same.

The IRS announced the 2010 optional standard mileage rates beginning January 1, 2010:

-          50 cents per mile for business miles driven

-          16.5 cents per mile for medical or moving purposes

-          14 cents per mile driven in service of charitable organizations

Limitations

The business standard mileage rate cannot be used to compute the deductible expenses of automobiles used for hire, or five or more automobiles owned or leased by a taxpayer and used simultaneously. In addition, a taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

Escaping Commercial Real Estate Foreclosure

In our August 4, 2009 e-Newsletter, we alerted our clients of the pending “Next Mortgage Crisis”. To address the pending issue of the coming commercial real estate “crisis”, on October 30, 2009, the Federal Deposit Insurance Corporation (FDIC) implemented new policy guidelines to its examiners and financial institutions for commercial loan workouts on those Commercial Real Estate (CRE) loans made to credit worthy borrowers. The new guidelines allow the value of commercial properties, which may have fallen below the loan amount, to continue as “performing” properties, under certain conditions. Link to FDIC policy guidance.

In the current economic downturn when cash flows are diminishing and with delays in selling or renting, the FDIC’s new policy guidance is routine. The new FDIC policy for its’ examiners and financial institutions provides guidance on developing processes for restructuring loans and on determining the correct structure for each property for credit worthy borrowers.

As noted in the Wall Street Journal, this situation reminds me of the real estate crash in the early 1990’s when the Resolution Trust Corp (RTC) destroyed numerous viable financial institutions. It was a mindless government “check the box” war on banks, and savings and loans. If this current approach was in effect back then, a lot of pain could have been avoided.

So, if possible, keep your loan current. Under the new guidelines your lending institution won’t be as anxious.

Section 179D offers energy tax incentives for energy efficiency upgrades, and installation of alternative sources of energy to new and existing buildings. Eligible buildings include commercial properties or multifamily residential buildings of four stories or more above grade.

To qualify, the energy efficient property (including interior lighting, heating/cooling/ventilation/hot water (HVAC) system, and building envelope) must reduce energy costs by 50% or more compared to a building that meets the minimum requirements of the Standard 90.1-2001 of the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) and the Illuminating Engineering Society of North America.

The section 179D deduction is equal to the cost of the energy efficient property, but is limited to $1.80 per square foot of the property placed into service.  The deduction expires on December 31, 2013.

Partial Deduction Available

For properties that do not meet the 50% reduction requirement, there is a potential deduction available limited to $0.60/sq. ft. However, the deduction is available, individually, for lighting, HVAC, or building envelope; with lighting given the first priority. After the maximum amount of deduction for lighting has been claimed (without reaching the partial reduction cap level), then a deduction for HVAC can be claimed, and followed by a claim for building envelope until the partial deduction has been maxed.

This partial deduction is varied from $0.30/sq. ft. to $0.60/sq. ft. for a reduction in lighting power density of 25% to 60% (as compared to ASHRAE standard) respectively.

Certification Requirements

Section 179D deductions require certification from an engineer or contractor (unrelated to taxpayer) licensed in the jurisdiction where the building is located and taxpayers are required to maintain records of the certification.

It is beneficial to use the Leadership in Energy and Environmental Design (LEED® ) certification and/or design principles when planning energy property improvements to assist in meeting the section 179D criteria.

Important Note for Government-Owned Buildings

For qualifying commercial building property, owned by Federal, State, or local government (public schools and universities), the owner may allocate the Section 179D deduction to the individual primarily responsible for designing the property, or in the case of multiple designers allocate the deduction among the designers or allocate the whole amount to the primary designer.

The designer may include:

-          Architect

-          Engineer

-          Contractor

-          Environmental consultant

-          Energy service provider

A person that installs, repairs, or maintains the property is not a designer. The deduction is allowed for the taxable years in which the property is placed in service.

The Wall Street Journal had an interesting article Monday on corporation’s increasing use of outsourced financial professionals.

McQuadeBrennan’s CFO Service group has been the firm’s fastest growing division. What I see in the Washington, DC marketplace is a shortage of accounting professionals who can tackle the multiple accounting and tax issues that organizations face daily. A private equity group we work with likes to use the term “efficacy” when describing our services.  It’s difficult for management to make assessments of a finance department’s “efficacy”, but they can make judgments on a department’s results. 

Tax returns get filed on time, financial statements are available real-time and most importantly, and what McQuadeBrennan believes is its most valuable service, the financial operations and results are clearly explained to management. 

 The 30-year fixed-rate mortgage averaged 5.04% for the week ending September 17^th, down from 5.07% last week and 5.78% a year ago.

 The 15-year fixed-rated mortgages averaged 4.47%, down from 4.5% last week and 5.35% a year ago.

The five-year adjustable-rate mortgages averaged 4.51%, unchanged from last week, while it averaged 5.67% a year ago.

The 30-year fixed-rate mortgage generally requires an average payment of 0.7 points, the 15-year fixed-rate mortgage requires an average payment of 0.6 points, and the ARMs require an average payment of 0.5 points. (A point is an upfront fee based on the loan amount.)

These increasingly low mortgage rates have boosted homebuilder and consumer confidence, resulting in a boost in recent home sales and new construction. 

I’ve seen many of my client’s portfolios and financials showing more red than black this year due to the economic crisis. I suggest businesses and individuals consider taking advantage of the longer net operating loss carryback option included in the recovery act. Eligible individuals have until October 15^th to make their election and eligible calendar-year corporations have until September 15^th.

Businesses with gross receipts of less than $15 million over a three-year period in the tax year beginning or ending in 2008 can carryback their current net operating losses (NOL) up to five years instead of two years, as previously allowed.

Advantages of taking the NOL carryback include:

-         Offsetting the loss against income taxes paid up to five prior years

-         Using up part or all of the loss now, rather than waiting to claim it on future returns

Corporations use Form 1139 to make their election and offset taxes.

Individuals, estates, and trusts use Form 1045 to make their election.

Business owners should be aware of the Section 179 and bonus depreciation tax deductions announced in the American Recovery and Reinvestment Act of 2009.  For qualifying property purchased during 2009, businesses are allowed to take Section 179 deductions up to $250,000 on the full purchase price of qualifying equipment purchased or financed from your gross income.  The limit to the total amount of equipment purchased is $800,000. Qualifying property includes:

-         Equipment for business use

-         Tangible personal property used in business

-         Business vehicles with a gross vehicle weight in excess of 6,000 lbs

-         Computers

-         Off-the-shelf computer software

-         Office furniture

-         Office equipment

-         Property attached to your building that is not a structural component of the building

-         Equipment purchased for business and personal use, deduction based on the percentage of time it is used for business purposes

You may also take 50 percent bonus depreciation for property placed in service in 2008 and 2009. The tax break has been extended for property with longer production periods. The bonus depreciation allowance is available for property depreciable under MACRS and has a recovery period of 20 years or less; water utility property; off-the-shelf computer software; or qualified leasehold improvement property. 

For businesses who have delayed capital expenditures, this may be a good time to take action. Equipment and motor vehicle dealers are discounting across the board, and the IRS will subsidize a portion of the cost. 

The Energy Improvement and Extension Act of 2008 and the American Recovery and Reinvestment Act of 2009 provide consumers with even more incentive to become environmentally friendly. Tax credits have been extended and expanded for purchases that make your home more energy efficient.

You can receive a 30% credit for residential renewable energy property added to your home. Previously, you could not claim a credit exceeding $2,000. Now, the dollar caps have been removed, except for the credit on fuel cell property. This credit applies to the cost of the property, as well as labor, and includes: 

-         Solar electric property

-         Solar water heating property

-         Small wind energy property

-         Geothermal heat pump

-         Fuel cell property (this credit is limited to $500 for each .5 kilowatt of capacity)

You can also receive a 30% credit, limited to a total of $1,500, for home energy efficiency improvements made January 1, 2009, through December 31, 2010. Previously, some improvements were eligible for a 10% credit, while others were only eligible for a $50, $150, or $300 credit. Now, all items listed below are eligible for a 30% credit. Also, the credit previously had a lifetime cap of $500, which has been raised to $1,500 for qualifying purchases made between 2009 and 2010. The 30% credit for insulation, roofs, windows, doors, and skylights only applies to the cost of the component. The credit for other qualifying improvements applies to the cost of the component, as well as labor.

-         Insulation material or systems that reduce heat loss or gain

-         Asphalt roofs with cooling granules

-         Metal roofs with pigmented coatings designed to reduce heat gain

-         Exterior windows, skylights, and doors

-         Central air conditioner

-         Natural gas, propane, or oil:

o       Furnace

o       Hot water boiler

o       Water heater

-         Electric heat pump water heater

-         Electric heat pump

-         Biomass fuel stove used for heat or hot water

-         Advanced main air circulating fan (used in a furnace)

A lot of contractors are looking for work, so prices on labor and materials are as good as they have been in many years.

Attention all business owners that conduct business in D.C.! The District has required all businesses that pay business taxes to have a valid District of Columbia Basic Business License (BBL). In general, if your business has a tax identification number, then you are required to obtain a BBL General Business License.   

There are rolling application deadlines based on your business zip code.  For businesses located in Maryland and
Virginia conducting business in the District, application deadlines will be based on the name of the city you are located. 

Maryland:                                      Virginia:

A-C     February 28, 2009             A-F    July 31, 2009

D-Q     March 31, 2009                G-Z     August 30, 2009

R-Z     April 30, 2009

Certain businesses are exempt from applying for a General Business License.  However, they are required to file an exemption request form. 

The following exemptions apply to businesses:

-  Who are required to maintain licensure by local, state or national certification board or body

-  Not having a Federal Employer Identification Number (FEIN)

-  Having a Basic Business License whose endorsements authorize all current business activities

-  Having a current occupational or professional license for business activities 

For example, health professionals, lawyers, professional service providers, educators, insurance providers, and service providers may file for exemption.

The 2009 Economic Stimulus Plan, officially known as the “American Recovery and Investment Plan”, was signed into law on February 17, 2009.  The bill, historical because of its many attributes, contains several incentives to jump start the economy.  

The following are key previsions businesses will find most beneficial: 

- NOL Carryback: Businesses with 2008 gross receipts of less than $15 million can carryback their current net operating losses (NOL) up to five years instead of two years, as previously allowed.  

- Industrial Development Bonds: The scope of state and local government issued industrial development bonds is temporarily extended to facilities manufacturing intangible property. 

- Bonus Depreciation and Section 179 Limits: For qualifying property purchased during 2009, businesses are allowed to take 50 percent bonus depreciation and Section 179 deductions of up to $250,000, certain restrictions apply. 

- Credit for Hiring “Disadvantaged” Workers:  A maximum tax credit of $2,400 for hiring unemployed veterans or individuals between the ages of 16 and 25 who have not been regularly employed or attending school in the past six months.  

- Reduction in S-Corp Asset Holding Period: The 10 year asset holding period requirement to avoid built-in gains tax on S Corporations has been temporarily reduced to seven years. 

- Transportation Fringe Benefits: The 2009 limit on pre-tax deductions for mass transit benefit has increased to $230 per month from the existing $120 and ties the benefit to inflation for future years.   

- COBRA Premium Subsidy: Includes 65% federal subsidy of COBRA premiums for involuntarily terminated employees for a period of up to nine months. To qualify for this premium subsidy, an employee must be involuntarily terminated between September 1, 2008 and December 31, 2009 and earn less than $125,000 if single, or $250,000 if married.  

Key previsions beneficial to individuals: 

- AMT Patch Extension: The existing alternative minimum tax (AMT) fix is extended for another year increasing exemption amounts up to $46,700 of an individual’s income and $70,950 of a couple’s income for 2009. It also allows the use of nonrefundable personal credits to avoid the alternative minimum tax. 

- Education Tax Credits: The Hope education credit limit is increased from $1,800 to $2,500 for all four years of college tuition. In addition, the credit will cover costs of textbooks and would now be 40 percent refundable. Also, computer related expenses are considered exempt under the new 529 College Savings Plan rules. 

- First-time Homebuyer’s Credit: A refundable tax credit increase of 10 percent of home value up to a maximum credit of $8,000 for purchases made before December 1, 2009 (November 30, 2009). The credit is forfeited if purchaser sells the house within three years. Certain income limitations apply.

- Credits for Residential Energy Efficiency Improvements: Tax credits are increased 30 percent up to a $1,500 maximum credit for home energy efficiency enhancement purchases, such as new furnaces or insulation. 

- Deductions for Car Buyers: Vehicles purchased in 2009 costing up to $49,500 qualify the car buyer to take above-the-line deduction for state, local and excise taxes as well as interest on their car loan. Phase out begins at $125,000 for individuals and $250,000 for married filing jointly.