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RECon Tax Bulletin
Cherry, Bekaert & Holland, L.L.P. | Real Estate & Construction Tax Bulletin October 2008
BEYOND THE BAILOUT: ECONOMIC STABILIZATION ACT OF
2008 EXTENDS REAL ESTATE AND ENERGY TAX PROVISIONS
Congress passed the Emergency Economic Sta-
bilization Act of 2008 (“the Act”) on October 3,
2008 in response to the economic and banking
crisis that has dominated the news over the last
month. President Bush immediately signed the bill
into law on the same day. While much of the me-
dia attention and scrutiny of the bill centered on
the so-called “bailout” legislation for the troubled
financial sector, the Act also contained a number
of significant real estate and energy-related tax
provisions.
DEPRECIATION
The Act extended the accelerated depreciation
allowance for qualified leasehold improvement
property over a 15-year recovery period instead of
a 39-year recovery period. This provision applies
to leasehold improvement property placed in ser-
vice by December 31, 2009. Qualified leasehold
improvement property is any improvement to an From a planning perspective, if a qualified lease-
interior portion of nonresidential real property (i.e., hold improvement property is placed into service
commercial property) provided that the following by December 31, 2008, then the cost of those im-
requirements are met: provements is eligible for the additional 50 percent
bonus depreciation. For example, if a landlord
• The improvement is made under, or pursu- made a $200,000 improvement to the interior por-
ant to, a lease by the lessee, lessor or any tion of a commercial building pursuant to a lease
sublessee to an interior portion of a building by December 31, 2008, assuming that all of the
• The improvement is made to a structural factors were met to classify this improvement as
component of a building and is not classi- a qualified leasehold improvement, then $100,000
fied as personal property (i.e., equipment or would be expensed on the landlord’s 2008 tax re-
furniture) turn in addition to the regular depreciation on the
• The lease cannot be between related parties remaining $100,000 of basis. If the landlord made
• The interior portion of a building has to be the improvement in 2009, the 15-year depreciation
occupied exclusively by the lessee in that would apply, but no 50 percent bonus depreciation
portion of the building would be available.
• The building has to be more than three years
old A similar 15-year recovery provision for qualified
restaurant property was extended through 2009.
Qualified restaurant property is any real proper-
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RECon Tax Bulletin
ty which is an improvement to a building that is
more than three years old and devotes more than
50 percent of the building’s square footage to the
consumption of prepared meals. However, the 50
percent bonus depreciation does not apply to this
type of property.
In addition, a new category of property, “qualified
retail improvement property”, was created by the
Act, and is eligible for the 15-year depreciation re-
covery period. The ability to use the 15-year recov-
ery period only applies to qualified retail improve-
ments placed into service in 2009. Qualified retail
improvement property is an interior improvement
to a building used for retail business if the building
is at least three years old when the improvement
is made. Essentially, this provision extends the can claim a $1,000 or $2,000 tax credit and the
benefits discussed above for qualified leasehold ability to receive the credit depends on the energy
improvements to retail properties that are owner- savings achieved by the home.
occupied.
In addition, the Act contained provisions relating to
residential energy tax credits for qualifying expen-
ENERGY (GREEN PROVISIONS) ditures made by homeowners. These residential
The Act extends the deduction for energy-efficient energy credits are broken down into the following
commercial building improvements through 2013. categories.
Energy-efficient commercial building property is
defined as depreciable property that is installed as Residential Energy Property Credit - A $500 tax
one of the following commercial building compo- credit is available in 2009 to homeowners that pur-
nents: chase energy-efficient exterior doors and windows,
metal roofs, insulation, heat pumps, furnaces, cen-
• Interior lighting systems tral air conditioners and water heaters. Since the
• Heating, cooling, ventilation and hot water credit is only available for 2009, you may want to
systems delay the purchase of the above items until 2009 in
• The building’s envelope order to take advantage of this credit.
The energy-efficient deduction is normally claimed Residential Alternative Energy Credit - A non-
by the building’s owner, but can be claimed by the refundable tax credit for specific alternative en-
primary person responsible for designing the prop- ergy equipment installed in connection to a hom-
erty in the case of a public building. The maximum eowner’s residence is available from 2008 through
amount of the deduction is $1.80 per square of 2016. The residential alternative energy credit is
the building. A partial deduction is also available if 30 percent of the following expenditures:
certain energy savings targets are obtained by the
building’s owner. • Qualified solar electric property
• Qualified solar water heating property
The Act also extended the availability of a tax cred- • Fuel cell property
it to contractors who construct or manufacture new • Small wind energy property
energy-efficient homes through 2009. A contractor • Geothermal heat pump property
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The tax credit may be capped at a certain amount CONCLUSION
depending on the type of equipment involved. For In summary, the Act contains several provisions
example, the maximum available credit for geo- that relate to real estate and energy efficiency.
thermal heat pump property is $2,000. These provisions are complex and, like any tax
law, there are potential exceptions to the general
rules discussed above – especially the energy-
MISCELLANEOUS PROVISIONS related provisions. It is recommended that you
The Act extended the $500 deduction ($1,000 for consult with your CB&H Real Estate & Construc-
joint returns) for state and local real property taxes tion tax specialist to determine if you are eligible
through 2009. This deduction relates to taxpayers for any of the deductions and credits discussed
who do not itemize their deductions and take the above. As always, the tax professionals at Cherry,
standard deduction on their individual tax return. Bekaert & Holland stand ready to assist you with
This deduction is in addition to the regular stan- understanding how the provisions of this new law
dard deduction on the taxpayer’s return. can help you and your business maximize tax sav-
ings beginning this year.
The Act also extended the $2 million exclusion of
income related to the discharge of indebtedness Contact the real estate and construction tax spe-
of a taxpayer’s principal residence through 2012. cialists at Cherry, Bekaert & Holland today to learn
This provision was originally enacted at the end more about how these new provisions can help
of 2007 as a response to the sub-prime lending you maximize current year tax savings for you and
crisis. your business.
Atlanta | 866.859.9792 Hampton Roads | 866.692.4264 Tampa | 813.251.1010
Tom Massey Kurt Taves Robert White
tmassey@cbh.com ktaves@cbh.com rwhite@cbh.com
Charlotte | 800.849.4224
W. Michael Howlett Bill Becker
Chris Truitt mhowlett@cbh.com bbecker@cbh.com
ctruitt@cbh.com
Northern Virginia/
Greenville, SC | 800.849.6241 Greater Washington | 703.506.4440
Brad Campbell Mario DeLuca
bcampbell@cbh.com mdeluca@cbh.com
U.S. Treasury Department Circular 230 Disclosure: In accordance with applicable professional regulations, please understand that, unless specifically stated otherwise, any written advice contained
in, forwarded with, or attached to this communication is not a tax opinion and is not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding any penalties that
may be imposed under the Internal Revenue code or applicable state or local law provisions or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.
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Cherry, Bekaert & Holland, L.L.P.
Marketing Department
1700 Bayberry Court – Suite 300
Richmond, Virginia 23226
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RECon Tax Bulletin
Useful Information for Your Business & Financial Success
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