The Building Owners and Managers Association continues to celebrate President Bush's recent signing of an economic stimulus package -- several sections of which are considered a major victory for the commercial real estate industry. The Job Creation and Work Assistance Act of 2002 contains several important business-related tax breaks that will directly aid owners of commercial real estate properties, many of whom were particularly hard hit by a changed environment following Sept. 11.
BOMA was especially buoyed by the establishment of a 30-percent depreciation "bonus" for qualified capital investments. The bonus would affect properties placed in service between Sept. 10, 2001 and Sept. 11, 2004.
Leasehold improvements, also known as tenant improvements, include changes to walls, floors, ceilings, lighting and plumbing to meet the needs of a new or existing tenant. In this marketplace, such configurations are commonplace. However, improvements made to a tenant's space must be depreciated at the same rate as the building structure itself -- a period of 39 years. Although taxpayers can write off an improvement after it goes "out of service" -- as occurs when the tenant vacates the rented space -- the tax code continues to unfairly treat improvement still "in service."
BOMA believes this existing depreciation rate should be permanently changed to reflect a more realistic status of the marketplace. "While we were disappointed that the economic stimulus bill did not include a permanent change in leasehold depreciation rules -- something we as an association have been seeking for years -- we were gratified by the fact that leasehold improvements were named as eligible assets to be included in the temporary, 30-percent depreciation bonus provision, which should significantly boost leasing activity and the economy as a whole," said BOMA International President Sherwood Johnston III.
Other important provisions in the economic stimulus package include the extension from 2 years to 5 years of the carry-back period for net operating losses generated in taxable years ending in 2001 and 2002. This will allow industry members to further reduce their tax burden in the short term.
The legislation also includes $5 billion in tax benefits and incentives to reinvest in an area of New York referred to as the "Liberty Zone." This provision should significantly help lower Manhattan recover from the Sept. 11 terrorist attacks and help replace the many properties that were destroyed by the attacks on the World Trade Center.
Even more encouraging were comments made by House Speaker J. Dennis Hastert, R-Ill., who said that the House will consider additional tax relief measures, including a provision to make the current estate tax repeal permanent.
Thompson, RPA, of PM Realty Group is president of BOMA San Diego.