This is the second in a series of brief articles that Moye White is sending to its clients and friends to provide practical advice about the opportunities and challenges presented by today's economy.
The American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) presents multiple opportunities for commercial real property owners and developers to utilize federal funds to help stimulate economic recovery. Specifically, the Recovery Act allocates billions of dollars for green building and energy efficiency projects, affordable housing, and infrastructure and transportation. Additionally, the Recovery Act includes changes to the tax code, establishing business tax incentives and debt forgiveness, that may greatly benefit many real estate developers.
- Green Building and Energy Efficiency.
- State Energy Program Funds: The Recovery Act has dedicated a significant amount of funds for various energy efficiency programs conducted by state and local governments. Commercial property owners seeking funds or tax breaks to offset the cost of energy efficiency upgrades will need to apply through city and state government programs. States receiving funds are encouraged to use federal funds for existing energy efficiency and renewable energy programs.
- Renewable Energy Loan Guarantees: The Recovery Act creates a temporary program to provide loan guarantees for renewable energy systems and electric power transmission systems that begin construction by September 30, 2011. This loan guaranty program for renewable energy projects administered by the Department of Energy would benefit commercial property owners that invest in alternative energy systems for onsite power generation.
- Brownfields: The Recovery Act includes $100 million in competitive grants for the evaluation and cleanup of former industrial and commercial sites for the purpose of returning them to productive community use.
- Affordable Housing. The Recovery Act includes $13 billion in funding initiatives for housing programs and projects including: (i) low income housing grants to act as a substitute for low income housing tax credits; (ii) billions of dollars in additional rental assistance payments to property owners receiving Section 8 rental assistance; and (iii) establishment of a public housing capital fund to retrofit public housing projects.
- Tax Treatment of Debt Forgiveness. Generally, taxpayers must recognize cancellation-of-debt income when they cancel or repurchase debt for an amount less than its adjusted issue price. In certain situations, the Recovery Act allows businesses to defer income generated from repurchasing business debt until calendar year 2014 and then report the income ratably over the 2014 through 2018 tax years. This may be a great benefit to commercial developers with respect to non-performing loans and work-outs with lenders.
- Business Tax Incentives. The following tax incentives, intended to support small businesses that occupy office space, retail space, warehouse space, may benefit commercial real estate owners. If you have questions about how these new provisions affect your commercial real estate ventures, please contact us.
- Extension of Bonus Depreciation: Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Last year, Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write off fifty percent of the cost of depreciable property acquired in 2008. The Recovery Act extends this temporary benefit for capital expenditures incurred in 2009.
- Extension of Enhanced Small Business Expensing: In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Until the end of 2010, small business taxpayers are allowed to write off up to $125,000 of capital expenditures subject to a phase-out once capital expenditures exceed $500,000. These write off amounts are indexed for inflation. Last year, Congress temporarily increased the amount that small businesses could write-off for capital expenditures incurred in 2008 to $250,000 and increased the phase-out threshold for 2008 to $800,000. The Recovery Act extends these temporary increases for capital expenditures incurred in 2009.
- 5-Year Carry-back of Net Operating Losses (“NOL”) for Small Businesses: Under current law, net operating losses may be carried back to the two taxable years before the year in which the loss arises and carried forward to each of the succeeding twenty taxable years after the year in which the loss arises. For 2008, the Recovery Act extends the maximum NOL carry-back period from two years to five years for small businesses with gross receipts of $15 million or less.
- Infrastructure Investment. The Recovery Act provides billions of dollars to state and local governments for capital investment in surface transportation projects including highways, bridges, transit and rail projects. These investments will tend to moderate traffic congestion and support a variety of transportation alternatives, which should help increase the long-term value of real estate near such projects.
For more information contact: Bo Anderson, Dom Sekich or Ted White, Chair, Transaction Section at (303) 292-2900.
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