SUPER CHARGE YOUR OZ AFTER-TAX IRR WITH COST SEGREGATION
Consequently , it is important to consider how structuring debt can provide basis for QOF investors .
• Substantial improvement test : As mentioned above , existing buildings must be substantially improved to qualify for OZ tax benefits . While a cost segregation study on the purchase price of the building can help a building pass the substantial improvement test , a cost segregation study on the rehabilitation costs could be detrimental to the substantial improvement test . However , such negative impacts can potentially be mitigated by utilizing certain aggregation provisions in the OZ regulations to apply the substantial improvement test . Consequently , it is important to consult your tax advisor to help you consider the impact of a cost segregation study on the substantial improvement test .
• Timing of cost segregation study : Cost segregation studies can be conducted upon purchase of a property , upon completion of a construction / rehabilitation project , or at any point during the holding period . Your tax advisor can help you determine the optimal point in the QOF lifespan to perform a cost segregation study .
• Interplay with other incentives : If a project is using other incentives like historic tax credits , it is important to consult a tax professional to understand how a cost segregation study may impact other incentives and to determine the strategy that optimizes the aggregate value of all tax benefits .
• Tax-exempt use restrictions : The benefit of a cost segregation study may be reduced for certain projects that have either tax-exempt owners or tax-exempt tenants . Your tax advisor can help you determine the extent to which such restrictions may apply and if there may be opportunities to mitigate the impact of such restrictions .
• Interplay with interest deduction limitations : After 2017 tax reform , many real estate projects are subject to limitations on their ability to deduct interest expense . In certain situations , an election can be made by the property owner that mitigates the impact of such interest deduction limitations . To maximize the benefit of a cost segregation study , it is critically important to consult your tax advisor regarding the potential interplay between the interest deduction limitations and the ability to claim bonus depreciation .
Valerie Grunduski is tax partner at Plante & Moran in Detroit . She is a real estate tax specialist with more than 15 years of
experience and leads Plante & Moran ’ s Opportunity Zones practice , providing consulting services for funds , developers and investors . She has experience working with multi-entity tax engagements , including residential and commercial property portfolios , real estate investment trusts , investment funds and family-owned real estate developers . Her tax experience includes compliance and consulting work related to real estate professionals , partnership restructuring , cancellation of debt planning , partner buy-outs and redemptions , tax credits , new markets tax credits and low-income housing tax credits .
Gordon Goldie is one of the leaders of Plante Moran ' s housing and community development solutions group . He spends 100 % of his time assisting for-profit and not-for-profit clients with real estate development projects involving tax incentives such as historic tax credits , New Markets Tax Credits , Brownfield redevelopment incentives , and the opportunity zones incentive . He assists clients nationwide in identifying available tax incentives and structuring transactions to optimize the net benefit of these incentives while ensuring compliance with all applicable tax law requirements .
Jeremy Sompels , senior manager and associate at Tax Solutions Group , is a building construction management professional who has
15 years of cost segregation experience . He has completed cost segregation analysis on facilities with capital expenditures ranging from $ 1 million to over $ 1 billion dollars . He also has experience in real estate , manufacturing , and healthcare industries as well as with retail facilities such as dealerships , banks , and restaurants . He previously served as the president of the American Society of Professional Estimators of Western Michigan , and earned his bachelor ’ s degree in construction management from the Michigan State University .
OPPORTUNITYZONE . COM