On the eve of the April 15 tax filing deadline, accountants are pushing to interpret and apply the new Job Creation and Worker Assistance Act of 2002 tax law provisions – just in time to save their client lots of money.
According to Greg Gandy, Director of Tax for BiggsKofford, his firm got news of the bill’s passage on Friday, Bush’s signature into law on Saturday, and followed up by e-mailing his entire firm’s client list by the following Monday. “This legislation represents encouraging news for the business community,” said Gandy. The upshot of the March 8 law is that taxpayers are now entitled to an additional first-year depreciation deduction equal to 30 percent of the cost of certain property and equipment. Property eligible for this special treatment includes:
n Equipment, computers, furniture, vehicles, land improvements and other property with a tax life of less than 20 years.
n Computer software, or
n Leasehold improvements
The terms of the new law are retroactive to September 11, 2001 and will extend through September 10, 2004. Some items will not be covered. In the case of commercial real estate, for example, the leasehold improvement provision will not apply unless the building has been in existence for three years.
Gandy notes that several aspects of the new law are still to be clarified, and BiggsKofford, like many others, is waiting for revised forms from the IRS and updated tax software from their vendors. In the meantime, clients immediately began contacting the firm to ask about qualifying depreciated assets. “One client called and asked me if he bought a new Suburban, would the depreciation apply,” Gandy said. “I told him ‘Absolutely – based on the way the law is written. That could mean a significant tax deduction for his business this year.”
“Commercial real estate owners and tenants stand to gain tremendous benefits from this legislation,” Gandy said. In the case of leasehold improvements made to commercial real estate, “the law applies to most tenant improvement costs other than enlargement of a building, elevators, escalators, structural components effecting common areas and the internal framework of the building.” To qualify, the leasehold improvement must be made after September 10, 2001, and before September 11, 2004. Gandy says, “Tenants who are shopping for space or building owners with vacant space will have an incentive to do tenant improvements because they will receive tax breaks.
According to the National Association of Realtors, approximately $15 billion of the $250 billion invested annually in commercial real estate annually goes into leasehold improvements such as carpeting, fixture or wiring upgrades that typically need to be replaced when the lease turns over. The impact of this figure doubles as it filters through the economy in the form of increased productivity and jobs for construction and remodeling companies, building material suppliers and other related industries.
Manufacturers will also be able to early depreciate billions of dollars in business improvements. “The general intent of Bush’s legislation was to create jobs, using tax laws, by providing incentives to employers to spend money,” Gandy said.
Whether or not the Job Creation and Worker Assistance Act of 2002 will work to stimulate a sluggish economy is unknown. “I think in the short term, no – there won’t be much affect,” said Gandy. “In the long run, however, this move may help companies considering expansion to act. So many business owners have been holding back to wait to see what the economy will do. Bottom line, the net cost of capital will be less this year than in prior years as a result of this new legislation.”