Commercial Real Estate: An Extra Stimulus Act Perk
By: Myles, March 24th, 2008
The Washington Business Journal’s Melissa Castro uncovers a buried treasure, deep within the 2008 Economic Stimulus Act.
Discover a lucrative perk for landlords and commercial tenants that’s there for the taking. In an effort to revive the commercial real estate industry, Congress increased the amount of construction costs that can be written off in the first year for improvements to commercial or residential rental property:
w THEN: Since 2006, only 2.5 percent of the costs of those improvements could be written off in the first year. The remainder had to be spread out over 39 years.
w NOW: With the change, landlords and commercial tenants can now write off 50 percent of the cost for “qualified leasehold improvements” in the first year alone, as long as the improvements are completed by the end of this year. The rest is written off in declining increments over just 15 years.
w RESULT: If you put $3 million of leasehold improvements into service in 2008, you get to deduct over $1.5 million in the first year. If you wait until 2009 to make the improvements, you will be able to deduct just $50,000.
The package also provides a boost for owners that want to implement environmentally friendly improvements. Now may be your time to go GREEN!
For the retail and restaurant industry, the tax package may offer the perfect recipe to stimulate spending. It’s great for restaurants because their interior build-out is so expensive. To be able to offset some of their costs in the first year is a tremendous advantage. And as every landlord knows, if the restaurant can get beyond the first year, they have a much better chance of succeeding. Win-win for everyone!
For office building owners — particularly those in the emerging markets and more far-flung suburbs — the package hopefully will attracts new tenants into empty buildings and get existing firms to expand their space.
And why not? At a 50% write-off, we haven’t seen this kind of aggressive tax code alteration since 9/11. This is absolutely a HOT IDEA, for all developers and landlords!
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