White Nelson Diehl Evans is dedicated to providing high quality, client focused tax, financial accounting and advisory services to assist our many customers in the real estate, development, contracting and construction sectors:

  • Real Estate Operations and Management
  • Construction
  • Contracting and Trades
  • Development
  • Investment
  • Property Management
  • Leasing and Brokerage
  • Multi-Family / Apartments
  • Equipment Rental Companies
  • Senior Housing, Assisting Living, Skilled Nursing and Continuing Care Facilities
Understanding the New Repair Regulation

In 2013, the IRS released the final repair and capitalization regulations that will affect taxpayers and in particular, property owners. Why? Landlords invest significantly into property improvements. These regulations created complex rules on how to classify certain assets, repairs, improvements or supplies. This classification determines whether the costs are deductible in the current tax year or capitalized and depreciated over a number of years.

There are five main areas of tax regulation: materials and supplies, repairs and maintenance, capital expenditures, amounts paid for acquisition and amounts paid for improvements. For example, when determining the deductibility of repairs and maintenance, the IRS no longer considers the taxpayer’s treatment of the cost of repairs and maintenance on its financial statements as determinative. Instead a safe harbor election looks at whether the taxpayer reasonably expects to perform such maintenance more than once every 10-year period.

However, when applying the capitalization standards, the IRS applies standards separately for a building and its components. A cost is treated as a capital expenditure when it results in an improvement to the actual structure of the building or building systems. When refreshing or remodeling a property, the final regulations rely on taxpayer specific facts and circumstances to determine if the costs are an improvement or should be expensed.

These regulations are lengthy and complex. At White Nelson Diehl Evans, we ask the right questions, collaborate with our clients to offer guidance on the most appropriate classifications and maximize their tax strategies.

Importance of Construction Tax Planning

The key to effective tax planning may seem self-evident, but too few companies actually set aside time each year to meet with their tax professional to layout a tax strategy. White Nelson Diehl Evans tax specialists help businesses identify the best tax strategies for construction businesses to minimize tax liabilities.

Many construction companies that have long term projects use the Percentage of Completion Method (PCM) which recognizes revenue as the project progresses. A project that has incurred 50% of estimated project costs recognizes 50% of the project’s total contract price as revenue. For projects that begin at the end of a tax year and are less than 10% complete, all gross profit can be deferred into the next year.

Congress passed the Protecting Americans from Tax Hikes (PATH) Act of 2015 which extended, modified or made permanent certain depreciation related tax policies. This Act extended the bonus depreciation for qualified property and new equipment purchased and placed in service during 2015 through 2019. These bonus depreciation tax deductions provide a great tax strategy for businesses with plans to purchase or construct qualified property. There are some limitations and the capital expense must meet qualification requirements.

The Path Act also permanently set the Code Section 179 expensing limit at $500,000 with a $2 million overall investment limit before phase out (both amounts are indexed for inflation beginning in 2016).

Many construction companies are unaware of research and development tax incentives designed specifically for the construction industry or they fail to take full advantage of such R&D credits. Credits such as designing HVAC systems, designing electrical system design, developing and improving construction equipment development are examples of construction activities that may be eligible for R&D tax credits.

Make annual tax planning meetings with your CPA firm a regular part of you business activities. White Nelson Diehl Evans tax specialists have experience and depth in assisting businesses in this industry.


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Tax Planning Guide

At White Nelson Diehl Evans, we know how difficult it is to stay ahead of the complex and dynamic tax laws. From new standards changing revenue recognition rules to the impact of the Affordable Care Act, our goal is to help our clients stay in front of tax issues that impact your bottom line. To help in this effort, we have put together a comprehensive tax-planning guide and it’s available to download for free.

Partner Testimonial

“With a 90 year heritage in Orange County, real estate and construction are native to WNDE. We understand the unique tax and accounting issues facing businesses in these sectors, and strive to deliver audit, tax and advisory services that help our clients run efficient operations and profitable projects.”

Gregory Coleman Audit Partner