Beth Collingz, of PLC International Marketing Networks, Lead Marketing Partner with Pacific Concord Properties Inc., whom have Condo Hotel or ‘Condotel’ developments in the Philippine, and whom specializes in working with international clients in a recent conference with UK Investors held in Cebu, said: Since the Dollar value depreciated and UK Pound Sterling hit 92:1 on the Philippine Peso, my phone has been very busy with buyers from the UK interested in purchasing investment properties and holiday homes here in the Philippines.
A lot of this interest is being driven by relatively cheap market prices in the Philippines compared to Europe, especially UK Housing prices, and easy payment options available for our Condotel Developments, but there are other factors, too. Offshore Property Investors, Foreign baby boomers as well as overseas Filipinos, are looking for ways to maximize their return on investments as they approach retirement, and so are purchasing second homes, particularly Condotel Investments where they can use the Condo for vacations and rent it out through In-House Management when not using the unit thereby gaining rental incomes that on today’s purchase prices, give a projected ROI on their investments of some 8-16% depending upon the mode of payment for the unit.
Collingz, who also runs PLC Global Pinoy, an internet based marketing network specializing in Condotel Investments, indicated more than 85% of all sales in Metro Manila were to international clients. These international buyers know it’s a buyer’s market in the Philippines right now - there are a lot of properties available and fewer local buyers, Collingz said. I’m working with clients who are purchasing their second property with me. We also have referrals from many of our prior customers and new clients who have found us through our Web sites, lancastersuites.com and plcglobalpinoy.com which include a special section for international buyers.
Another major driving factor in overseas property investments from the United Kingdom is UK Tax Payers taking advantage of tax incentives and Investing their Self-Invested Pension Plan [SIPP] In Philippine Condotel Investment Real Estate for Rental Income and Retirement said Collingz.
A Self Invested Pension Plan [SIPP] is a personal pension plan but with one very significant difference: administration is separate from investment content, giving the plan holder freedom to choose for himself and change the investments within it. The long-awaited rules on what savers can include in their personal pension plans were unveiled in April 2006 by HM Revenue & Customs. The Guidance Notes confirm that the Chancellor is permitting Self Invested Pension Plan [SIPP] holders to invest in hotels such as the Lancaster Brand of Condo Hotels in the Philippines. The only stipulation is that SIPP holders may not stay in their rooms. With more nights available for paying guests, this not surprisingly increases the room owners' returns. It is estimated there are now more than 70,000 plans holding over ฃ14bn.
A year or so ago, few people in the UK realized that they could manage their Pension Plan portfolios themselves, and even fewer knew that they could invest their SIPP retirement money in homes in the sun which now prove to be among the most popular potential investments to include in a SIPP
If you’re considering using your SIPP to invest in real estate, there are some excellent reasons that you should choose Philippine Condotel Investment real estate to drive your retirement portfolio into high profit margins. The Philippines is ideal for this type of investment because a SIPP can establish title to a property in a country whose legal framework recognizes trusts and a SIPP is simply another form of trust.
Investing in foreign real estate is neither as risky nor as tricky as a lot of people would have you believe. While land and housing prices in the U.K. have soared astronomically in the past decade, the world real estate market is a far different story. It’s still possible to buy a preconstruction Condotel suite at Lancaster The Atrium located in Metro Manila, Philippines, for less than GBP ฃ25,000.00
The beauty of holding property in the Philippines is the low cost of property taxes and maintenance. A GBP ฃ25,000 Condotel suite will only set you back GBP ฃ100 in property taxes per year, and maintenance costs are similarly low. When you add in the tax-protected status of investments made in your SIPP, annual off plan property appreciation and the 8-16% returns through rental income through the Condotel advantage, you have an incredible ROI on a purchase of Philippine Condotel investment real estate enthused Collingz.
With preconstruction property in the Philippines appreciating at some 20% per annum not only do real estate investments look good but the rental income return in the Country is in excess of what many Pension Plans offer for the same or similar investment.
Many new investors are looking to replace failed pension plans and other future saving schemes with a solid investment in Real Estate. Clients are looking for investments that will give them an income for retirement as an alternative to traditional private pension plans that have failed. Most company pension plans are insufficient as are Government Pensions. Bank rates for Savings accounts are at record lows. Savvy investors are now looking for a more solid investment with potential for monthly income. Condotels in the Philippines fit the bill.
This potential, high rates of rental returns from Condo Hotel Investments, up to 16% per annum, opens up a huge market not traditionally looked at by Real Estate Agents and Brokers whom all so often run around looking for normal residential profile buyers without looking at the by far bigger picture of investments, investing and retirement. "We’re here to help our clients and advise them of emerging investment opportunities in the Philippines. Self-Invested Pension Plans and Lancaster Condotels, fit this bill exactly; adds Collingz.
Pacific Concord Properties, Inc., Flagship Lancaster Condo Hotel [Manila] development located along Shaw Boulevard, Mandaluyong City, Metro Manila, is currently one of the hottest Condotel Investments in the Philippines. Lancaster - The Atrium is accepting Reservations for Studio, One, Two & Three Bedroom Suites adopting International Standard Escrow Trust Account Buyer Safe Easy Secure Payment Plans with 6 year interest free payment terms or up to 12 year "In-House" financing available, full condo ownership and minimum monthly maintenance fees, you really should take a moment to look at this Philippine Condotel Investment Opportunity said Collingz.
Further info regarding Condotel Investments in the Philippines, Lancaster Suites currently available suites, price and terms of payment can be found on the firms website.
Monday, December 8, 2008
Tips For Property Sellers
For the last five years, you could pretty much list a property on the market in any condition and have it sell. That is no longer the case, which means you need some tips.
Tips For Property Sellers
In recent years, selling a property was a breeze. As long as the structure was in any kind of decent shape, you could expect offers to rain down when it hit the market. Sometimes, you would close the sale before the property ever hit the market! To say it was a sellers market is a slight understatement.
As was inevitable, the real estate market has cooled off a bit. From a historical perspective, it is still red hot although not as hot as the last few years. As a seller, this means you need to start focusing on the fundamentals of selling your property. The following tips should get you focused.
Purchasing a property is an emotional decision. To this end, you need to position yours to captivate potential buyers. In this case, this means giving it a makeover. For instance, you should:
1. Cut back the forest known as your yard.
2. If your landscaping isn’t that great, spend the money on new plants to make it look appealing. The buyer has to see themselves living in the property, so make it a paradise.
3. Clean the roof and fix any loose shingles, etc. Buyers and appraisers always look at roofs closely.
4. Clean up any paint issues on the interior of the property including behind doors, in closets and so on. This may sound odd, but buyers will look in every little cranny.
5. Clean up any paint issues on the exterior of the property. Obvious spots include the sides of the home and behind any plants that sit up against the wall.
6. Clean your driveway and garage floor. Nasty oil spots take away from the appearance of your gem. A super clean driveway and garage floor is a sign of a seller that has made a major effort to maintain the property, a factor buyers will view very favorably.
7. Finally, list it for sale on the Internet. A vast majority of buyers now surf the web looking for their dream residence. If your property isn’t listed, they will not see it.
At the end of the day, all of the above boils down to one real theme. What would you look for if you were out shopping for a property? Make a list and then analyze your property with an eye towards those items.
Tips For Property Sellers
In recent years, selling a property was a breeze. As long as the structure was in any kind of decent shape, you could expect offers to rain down when it hit the market. Sometimes, you would close the sale before the property ever hit the market! To say it was a sellers market is a slight understatement.
As was inevitable, the real estate market has cooled off a bit. From a historical perspective, it is still red hot although not as hot as the last few years. As a seller, this means you need to start focusing on the fundamentals of selling your property. The following tips should get you focused.
Purchasing a property is an emotional decision. To this end, you need to position yours to captivate potential buyers. In this case, this means giving it a makeover. For instance, you should:
1. Cut back the forest known as your yard.
2. If your landscaping isn’t that great, spend the money on new plants to make it look appealing. The buyer has to see themselves living in the property, so make it a paradise.
3. Clean the roof and fix any loose shingles, etc. Buyers and appraisers always look at roofs closely.
4. Clean up any paint issues on the interior of the property including behind doors, in closets and so on. This may sound odd, but buyers will look in every little cranny.
5. Clean up any paint issues on the exterior of the property. Obvious spots include the sides of the home and behind any plants that sit up against the wall.
6. Clean your driveway and garage floor. Nasty oil spots take away from the appearance of your gem. A super clean driveway and garage floor is a sign of a seller that has made a major effort to maintain the property, a factor buyers will view very favorably.
7. Finally, list it for sale on the Internet. A vast majority of buyers now surf the web looking for their dream residence. If your property isn’t listed, they will not see it.
At the end of the day, all of the above boils down to one real theme. What would you look for if you were out shopping for a property? Make a list and then analyze your property with an eye towards those items.
Things to Consider When Selling Your Home
Although the real estate market has cooled off a bit, it is still a hot market in historical terms. As a seller, this is good news when you decide to sell your home.
Things to Consider When Selling Your Home
A year or so ago, selling a residence was laughably easy. In some markets, it was clear that you could list practically anything and get an offer within a week or so. The market was so hot that some homes sold before actually appearing in MLS listings and such. For sellers, it just didn’t get any better.
As the market has cooled, sellers have had to return to the basic premise of selling a home. Homes simply are not being snapped up right and left. Here are a few things you should consider.
1. Can you afford another home? Most sellers intend to purchase another home with the proceeds from their sale. Logically, this makes sense, but real estate is not always logical. One area that can be problematic is the interest rate on loans. Your current loan may have a very low interest rate, but you will probably have a much higher one on a new loan. Will you be able to handle the increased monthly payments? Make sure.
2. Why are you going to sell? Some people rush into the sale of a home and come to regret it. Is there an objective reason, such as relocation, for selling your home or are you trying to cash in at the top of the market? Cashing in is not a bad thing, but it is unnecessary if you intend to stay in the same area for the next 10 to 20 years. Markets will bounce up and down, so you need not be overly concerned about the short term.
3. What is the home worth? This may sound like a simple question, but it is one of the biggest issues you should be addressing. Remember, the value of the home is set by comparable homes and appraisals, not what you personally think it is worth. Getting an understanding of the objective value gives you the ability to determine whether selling is a good idea or not.
The decision to sell is a serious one. It is no secret real estate has dramatically appreciated in the last few years. Whether you should cash in on that fact is a question only you can answer.
Things to Consider When Selling Your Home
A year or so ago, selling a residence was laughably easy. In some markets, it was clear that you could list practically anything and get an offer within a week or so. The market was so hot that some homes sold before actually appearing in MLS listings and such. For sellers, it just didn’t get any better.
As the market has cooled, sellers have had to return to the basic premise of selling a home. Homes simply are not being snapped up right and left. Here are a few things you should consider.
1. Can you afford another home? Most sellers intend to purchase another home with the proceeds from their sale. Logically, this makes sense, but real estate is not always logical. One area that can be problematic is the interest rate on loans. Your current loan may have a very low interest rate, but you will probably have a much higher one on a new loan. Will you be able to handle the increased monthly payments? Make sure.
2. Why are you going to sell? Some people rush into the sale of a home and come to regret it. Is there an objective reason, such as relocation, for selling your home or are you trying to cash in at the top of the market? Cashing in is not a bad thing, but it is unnecessary if you intend to stay in the same area for the next 10 to 20 years. Markets will bounce up and down, so you need not be overly concerned about the short term.
3. What is the home worth? This may sound like a simple question, but it is one of the biggest issues you should be addressing. Remember, the value of the home is set by comparable homes and appraisals, not what you personally think it is worth. Getting an understanding of the objective value gives you the ability to determine whether selling is a good idea or not.
The decision to sell is a serious one. It is no secret real estate has dramatically appreciated in the last few years. Whether you should cash in on that fact is a question only you can answer.
The Real Estate Market in Jacksonville, Florida
Whether there is a real estate bubble and, if so, will it pop is a popular topic across the country. The real estate marketing in Jacksonville, Florida, however, is a major exception.
The Real Estate Market in Jacksonville, Florida
Jacksonville is located in the northeastern part of Florida and is just below the border with Georgia. Real estate in Jacksonville is a steal, particularly given appreciation rates. A Jacksonville home will run you $125,000 on average, about $50,000 less than the national average.
The real beauty of homes in Jacksonville is the appreciation rate. Despite prices that are well below national averages, appreciation rates are excellent at approximately 14 percent. Put in practical terms, it is the perfect time to buy. You can get an excellent price and expect property values to increase. This represents the ideal real estate scenario.
As to the city of Jacksonville, things are definitely on the upswing. Job growth is triple the national average, and is expected to double or even triple over the next few months. Despite this strong growth, the cost of living is about 10 percent less than the national average. You’ll find more doctors on average than other locations in the nation, but the cost of medical care is about 15 percent less than you’ll find elsewhere on average. Since you are in Florida, you’ll pay no state income tax, which makes you’re money go a lot farther.
Although Jacksonville is located in the far north of Florida, it has a similar climate to the rest of the state. You’re going to get about 50 inches of rain on average and it is going to be in the nineties in the summer. Unlike Miami, however, the winter can get a bit nippy with temperatures falling into the mid forties. For many people, however, this is viewed as a positive since it is nice to get a break from the hot Florida climate every once in a while.
With low home prices, solid appreciation rates and no state income tax, Jacksonville is a prime real estate market.
The Real Estate Market in Jacksonville, Florida
Jacksonville is located in the northeastern part of Florida and is just below the border with Georgia. Real estate in Jacksonville is a steal, particularly given appreciation rates. A Jacksonville home will run you $125,000 on average, about $50,000 less than the national average.
The real beauty of homes in Jacksonville is the appreciation rate. Despite prices that are well below national averages, appreciation rates are excellent at approximately 14 percent. Put in practical terms, it is the perfect time to buy. You can get an excellent price and expect property values to increase. This represents the ideal real estate scenario.
As to the city of Jacksonville, things are definitely on the upswing. Job growth is triple the national average, and is expected to double or even triple over the next few months. Despite this strong growth, the cost of living is about 10 percent less than the national average. You’ll find more doctors on average than other locations in the nation, but the cost of medical care is about 15 percent less than you’ll find elsewhere on average. Since you are in Florida, you’ll pay no state income tax, which makes you’re money go a lot farther.
Although Jacksonville is located in the far north of Florida, it has a similar climate to the rest of the state. You’re going to get about 50 inches of rain on average and it is going to be in the nineties in the summer. Unlike Miami, however, the winter can get a bit nippy with temperatures falling into the mid forties. For many people, however, this is viewed as a positive since it is nice to get a break from the hot Florida climate every once in a while.
With low home prices, solid appreciation rates and no state income tax, Jacksonville is a prime real estate market.
The Latest Information on Florida Mortgage
The following article presents the very latest information on Florida mortgage. If you have a particular interest in Florida mortgage, then this informative article is required reading.
Florida real estate is continuously at its peak: offering low interest rates, low down payment, high home value and abundant housing supply. To compliment all these positivity in the Florida real estate arena, various property investment opportunities are also open in this state.
It is thus essential that if you can afford to invest on the Florida real estate, start it immediately to take advantage of the boom. Additionally, experts say that you need to move immediately and seek Florida mortgage if it is the only way for you to take advantage of this positive experience in the Florida real estate world.
The reason why you need to rush is because this trend of low cost mortgages and real estate investing in Florida may already take a different route. You may need to consider that the world economy is already taking steam and thus Florida real estate may suffer as well.
Knowledge can give you a real advantage. To make sure you’re fully informed about Florida mortgage, keep reading.
You may thus need to take advantage of the current trend and hope to be able to get your Florida mortgage application approved immediately.
It may however be necessary that before you check out a mortgage lead company, you need to assess your capacity to pay. This is because if you are not able to pay your obligation as evidenced by the mortgage contract in Florida, the property you acquire or the property you used as collateral may be subjected to foreclosure.
Financial experts thus recommend that you make a thorough assessment of your financial condition before you think of Florida mortgage loans.
Write down all you income sources from now until about twenty to thirty years, consider your expenditures whether normal or otherwise. The balance is the money you can use to pay-off Florida mortgages, if ever. Ideally, it should be at least 1/3 of your total household income.
One-third is an ideal figure; however, this needs to depend on your spending pattern and your normal spending requirements. That balance is what you can use for mortgage payments; ensure that the figure will be regular and that you are sure you can set it aside for the sole purpose of paying your Florida mortgage loan.
This may now give you the real picture of how much you can afford as mortgage payments in your Florida property. Even with the current trending that Florida mortgages enjoy low interest, you may still need to consider that soon it may change.
Thus, if you find it feasible to invest in Florida real estate while investing is still on a low base, act now.
Seek assistance from reliable and experienced mortgage counselors. They will work with you until you are comfortable and clear with the terms and conditions of Florida mortgages. They will not ask you to sign anything until or confirm with you anything until you are able to sit-down with them and discuss you financial condition. They understand how hard you worked for you money and thus will help you decide on the most suited Florida mortgage.
To find out more about Florida mortgage plans and how They can help you, log on to their website and see how many people have already taken advantage of the reliable and experienced The counselors.
That’s the latest from the Florida mortgage authorities. Once you’re familiar with these ideas, you’ll be ready to move to the next level.
Florida real estate is continuously at its peak: offering low interest rates, low down payment, high home value and abundant housing supply. To compliment all these positivity in the Florida real estate arena, various property investment opportunities are also open in this state.
It is thus essential that if you can afford to invest on the Florida real estate, start it immediately to take advantage of the boom. Additionally, experts say that you need to move immediately and seek Florida mortgage if it is the only way for you to take advantage of this positive experience in the Florida real estate world.
The reason why you need to rush is because this trend of low cost mortgages and real estate investing in Florida may already take a different route. You may need to consider that the world economy is already taking steam and thus Florida real estate may suffer as well.
Knowledge can give you a real advantage. To make sure you’re fully informed about Florida mortgage, keep reading.
You may thus need to take advantage of the current trend and hope to be able to get your Florida mortgage application approved immediately.
It may however be necessary that before you check out a mortgage lead company, you need to assess your capacity to pay. This is because if you are not able to pay your obligation as evidenced by the mortgage contract in Florida, the property you acquire or the property you used as collateral may be subjected to foreclosure.
Financial experts thus recommend that you make a thorough assessment of your financial condition before you think of Florida mortgage loans.
Write down all you income sources from now until about twenty to thirty years, consider your expenditures whether normal or otherwise. The balance is the money you can use to pay-off Florida mortgages, if ever. Ideally, it should be at least 1/3 of your total household income.
One-third is an ideal figure; however, this needs to depend on your spending pattern and your normal spending requirements. That balance is what you can use for mortgage payments; ensure that the figure will be regular and that you are sure you can set it aside for the sole purpose of paying your Florida mortgage loan.
This may now give you the real picture of how much you can afford as mortgage payments in your Florida property. Even with the current trending that Florida mortgages enjoy low interest, you may still need to consider that soon it may change.
Thus, if you find it feasible to invest in Florida real estate while investing is still on a low base, act now.
Seek assistance from reliable and experienced mortgage counselors. They will work with you until you are comfortable and clear with the terms and conditions of Florida mortgages. They will not ask you to sign anything until or confirm with you anything until you are able to sit-down with them and discuss you financial condition. They understand how hard you worked for you money and thus will help you decide on the most suited Florida mortgage.
To find out more about Florida mortgage plans and how They can help you, log on to their website and see how many people have already taken advantage of the reliable and experienced The counselors.
That’s the latest from the Florida mortgage authorities. Once you’re familiar with these ideas, you’ll be ready to move to the next level.
Tgr asia, Developers of jumeirah private island phuket commence
HONG KONG (Insert date) - Jumeirah Private Island Phuket, Asia Pacific’s most exclusive development is scheduled for completion in 2009 and set to offer levels of luxury, privacy and security as yet unseen in Asia Pacific. It will also be home to an elite super yacht marina and the private members only Jumeirah Private Island Yacht Club.
The super yacht marina will have 101 berths and will offer true “super yacht” facilities with 24 hour deep water access. The marina will double the number of designated “super yacht” berths in Thailand (thailand property, thailand homes), with 7 slips measuring in excess of 45 metres and an average slip length of over 22 metres.
The marina, located in a protected lagoon on the east coast of the island is surrounded by tropical mangroves, and will be built to top international standards. The marina will include facilities such as helicopter and/or ferry access to and from Phuket, fuel dock with pump out facility, yacht maintenance and repair services and individual berth technology pipes.
The Jumeirah Private Island Phuket Yacht Club (megayachts phuket, islands phuket, mega yachts phuket, phuket islands) is planning to host regattas and black tie functions and will offer a range of facilities; club house, swimming pool, accommodation, formal and informal waterfront dining, business centre and fitness centre.
The benefits of berthing in Phuket (phuket property, real estate phuket) include fuel, crew and dockage costs up to 80 percent cheaper than Europe and no luxury yacht taxes.
TGR contact : Anthony Franklin – Partner, Marketing Director.
Note to editors:
TGR
TGR Group develops and markets award winning luxury hotels and resorts. The management team has over 100 years combined experience working with leading, global construction companies and a successful track record across three continents.
Jumeirah
Jumeirah properties are regarded as amongst the most luxurious and innovative in the world and have won numerous international travel and tourism awards. The rapidly growing Dubai-based luxury international hospitality management group encompasses the world renowned Burj Al Arab, the world’s most luxurious hotel, the multi-award winning Jumeirah Beach Hotel, Jumeirah Emirates Towers, Madinat Jumeirah and Jumeirah Bab Al Shams Desert Resort & Spa in Dubai, the Jumeirah Carlton Tower and Jumeirah Lowndes Hotel in London and the Jumeirah Essex House on Central Park South in New York.
The Jumeirah Group portfolio also includes Wild Wadi, regarded as one of the premier water parks outside of North America and The Emirates Academy of Hospitality Management, the region’s only third level academic institution specializing in the hospitality and tourism sectors.
Building on this success, Jumeirah Group became a member of Dubai Holding in 2004, a collection of leading Dubai based businesses and projects, in a step that aims to initiate a new phase of growth and development for the group.
Jumeirah’s ambitious expansion plans to grow its portfolio of luxury hotels and resorts worldwide to 57 by 2011 are well underway with projects currently under development in Dubai, Abu Dhabi, Aqaba, Doha, Phuket, Shanghai, Bermuda, Mallorca and London.
Tags: Thailand property, Thailand homes, real estate companies Phuket, property in Phuket, Phuket islands, private islands, Phuket villas, Phuket hotel resorts, Phuket property, real estate Phuket, tgr, 5 star hotels phuket, marinas phuket, homes for sale phuket, islands phuket, resort developments phuket, beach villas phuket, jumeirah beach villas, luxury villas phuket, jumeirah
The super yacht marina will have 101 berths and will offer true “super yacht” facilities with 24 hour deep water access. The marina will double the number of designated “super yacht” berths in Thailand (thailand property, thailand homes), with 7 slips measuring in excess of 45 metres and an average slip length of over 22 metres.
The marina, located in a protected lagoon on the east coast of the island is surrounded by tropical mangroves, and will be built to top international standards. The marina will include facilities such as helicopter and/or ferry access to and from Phuket, fuel dock with pump out facility, yacht maintenance and repair services and individual berth technology pipes.
The Jumeirah Private Island Phuket Yacht Club (megayachts phuket, islands phuket, mega yachts phuket, phuket islands) is planning to host regattas and black tie functions and will offer a range of facilities; club house, swimming pool, accommodation, formal and informal waterfront dining, business centre and fitness centre.
The benefits of berthing in Phuket (phuket property, real estate phuket) include fuel, crew and dockage costs up to 80 percent cheaper than Europe and no luxury yacht taxes.
TGR contact : Anthony Franklin – Partner, Marketing Director.
Note to editors:
TGR
TGR Group develops and markets award winning luxury hotels and resorts. The management team has over 100 years combined experience working with leading, global construction companies and a successful track record across three continents.
Jumeirah
Jumeirah properties are regarded as amongst the most luxurious and innovative in the world and have won numerous international travel and tourism awards. The rapidly growing Dubai-based luxury international hospitality management group encompasses the world renowned Burj Al Arab, the world’s most luxurious hotel, the multi-award winning Jumeirah Beach Hotel, Jumeirah Emirates Towers, Madinat Jumeirah and Jumeirah Bab Al Shams Desert Resort & Spa in Dubai, the Jumeirah Carlton Tower and Jumeirah Lowndes Hotel in London and the Jumeirah Essex House on Central Park South in New York.
The Jumeirah Group portfolio also includes Wild Wadi, regarded as one of the premier water parks outside of North America and The Emirates Academy of Hospitality Management, the region’s only third level academic institution specializing in the hospitality and tourism sectors.
Building on this success, Jumeirah Group became a member of Dubai Holding in 2004, a collection of leading Dubai based businesses and projects, in a step that aims to initiate a new phase of growth and development for the group.
Jumeirah’s ambitious expansion plans to grow its portfolio of luxury hotels and resorts worldwide to 57 by 2011 are well underway with projects currently under development in Dubai, Abu Dhabi, Aqaba, Doha, Phuket, Shanghai, Bermuda, Mallorca and London.
Tags: Thailand property, Thailand homes, real estate companies Phuket, property in Phuket, Phuket islands, private islands, Phuket villas, Phuket hotel resorts, Phuket property, real estate Phuket, tgr, 5 star hotels phuket, marinas phuket, homes for sale phuket, islands phuket, resort developments phuket, beach villas phuket, jumeirah beach villas, luxury villas phuket, jumeirah
Summary Regulatory History of Cost Segregation
BACKGROUND
In order to calculate depreciation for Federal income tax purposes, taxpayers must use the correct method and proper recovery period for each asset or property owned. Property often consists of numerous asset types with different recovery periods, which must be separated into individual components or asset groups having the same recovery periods and placed-in-service dates.
When the actual cost of each individual component is available, this is a rather simple procedure. However, when only lump-sum costs are available, cost estimating techniques may be required to “segregate” or “allocate” costs to individual components of property (e.g., land, land improvements, buildings, equipment, furniture and fixtures, etc.). This type of analysis is generally called a “cost segregation study,” “cost segregation analysis,” or “cost allocation study.”
Significant tax benefits may be derived from utilizing shorter recovery periods. The issues for Internal Revenue Service Examiners (Service Examiners) are 1) the rationale used to segregate property into its various components, and 2) the methods used to allocate the total project costs among these components.
The most common situation is the allocation or reallocation of building costs to tangible personal property. A building, termed "section (ง) 1250 property", is generally 39-year property eligible for straight-line depreciation. Equipment, furniture and fixtures, termed "section (ง) 1245 property", are tangible personal property. Tangible personal property has a short recovery period, thus, a faster depreciation write-off (and tax benefit).
Property allocations and reallocations are typically based on criteria established under the Investment Tax Credit (ITC). In a recent landmark decision, the Tax Court ruled that, to the extent tangible personal property is included in an acquisition or in overall costs, it should be treated as such for depreciation purposes. The court also decided that the rules for determining whether property qualifies as tangible personal property for purposes of ITC (under pre-1981 tax law) are also applicable to determining depreciation under current law. [See Hospital Corporation of America, 109 T.C. 21 (1997)] The Service acquiesced to the use of ITC rules for distinguishing ง 1245 property from ง 1250 property.
OVERVIEW
It is important to review the relevant legal history and the motivations of taxpayers to allocate costs to personal property. The legislative and judicial history of depreciation, depreciation recapture, and Investment Tax Credit (ITC) are closely related.
The Internal Revenue Code (IRC) has historically authorized depreciation as an allowance for the exhaustion, wear and tear, and obsolescence of property used in a trade or business or for the production of income (IRC Sec. 167 and the regulations thereunder.)
BULLETIN F
For example, IRS Publication Number 173 (also known as "Bulletin F") was published in 1942 and provided a useful life guide for various types of property based on the nature of a taxpayer's business or industry. Bulletin F identified over 5,000 assets used in 57 different industries and activities and described two procedures for computing depreciation for buildings:
Composite Method: A depreciation chart provided a composite rate for buildings, including all installed building equipment.
Component Method: Taxpayers could elect to depreciate the building equipment separately from the structure itself.
COMPONENT DEPRECIATION
In 1959, the Tax Court recognized the right of taxpayers to calculate depreciation using a component method for newly constructed property [Shainberg vs. Commissioner, 33 T.C. 241 (1959)].
Revenue Procedure 62-21, 1962-2 C.B. 418, superceded Bulletin F and provided safe harbor useful lives based on industry-specific asset classes for taxpayers that met the reserve ratio test (a complex provision).
Revenue Ruling 66-111, 1966-1 C.B. 46 (subsequently modified by Revenue Ruling 73-410, 1973-2 C.B. 53), addressed the use of component depreciation for used real property, in light of the decision in Shainberg. The ruling concluded that “When a used building is acquired for a lump sum consideration, separate components are not bought; a unified structure is purchased… Accordingly, an overall useful life for the building must be determined on the basis of the building as a whole.”
Revenue Ruling 68-4,1968-1 C.B. 77, concluded that the asset guideline classes outlined in Revenue Procedure 62-21 “…may only be used where all the assets of the guideline class (building shell and its components) are included in the same guideline class for which one overall composite life is used for computing depreciation.”
ASSET DEPRECIATION RANGE (ADR)
The elective ADR system, implemented by Revenue Procedure 72-10, 1972-1 C. B. 721, was developed for tangible assets placed in service after 1970. All tangible assets were placed in one of the more than 100 asset guideline classes (which generally corresponded to those set out in Rev. Proc. 62-21). The classes of assets were based on the business and industry of the taxpayer. In addition, each class of assets other than land improvements and buildings was given a range of years (called "asset depreciation range") that was about 20 percent above and below the class life.
If the taxpayer did not elect the ADR system, Revenue Ruling 73-410, 1973-2 C.B. 53, clarified that a taxpayer may utilize the component method of depreciating used property if a qualified appraiser "…properly allocates the costs between non-depreciable land and depreciable building components as of the date of purchase."
ACCELERATED COST RECOVERY SYSTEM (ACRS)
Congress enacted IRC Sec. 168 I 1981. The ACRS was intended to provide a less complicated method for computing depreciation (known as “cost recovery” by eliminating salvage value and specifying recovery periods of various classes of assets. In contrast to the elective ADR system, ACRS was mandatory and provided only five (later six) recovery periods. ACRS also allowed for a faster write-off of assets than had been allowed under previous rules.
MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS)
Significant modifications, generally less favorable to taxpayers, were made to ACRS by the Tax Reform ACT of 1986 (effective for property placed in service after December 31, 1986). Under the Modified Accelerated Cost Recovery System, the recovery period for buildings and structural components increased dramatically.
Revenue Procedure 87-56, 1987-2 C.B. 674, provides the class lives and recovery periods for most MACRS assets. These determinations are based on the specific industry of a taxpayer and the specific activity for which the assets are used.
EXPENSING PROVISIONS AND BONUS DEPRECIATION
Another incentive for allocating costs to shorter-lived property is the expensing provision of IRC Sec. 179. By maximizing the costs allocable to tangible personal property, the taxpayer can not only get an immediate write-off under ง 179, but also qualifies for a shorter recovery period under ง 168. Also, the 30-percent additional first year bonus depreciation allowance pursuant to ง 168(k), enacted by the Job Creation and Worker Assistance Act of 2002 (Public Law 107-147), provides even further incentive for taxpayers to segregate property into shorter recovery periods. The Jobs and Growth Reconciliation Tax Act of 2003 recently increased the bonus depreciation under ง 168(k) to 50 percent for certain qualifying property acquired after May 5, 2003, and placed in service before January 1, 2006. Section 1400L provides special rules for qualifying property used by a business in the New York Liberty Zone.
INVESTMENT TAX CREDIT - IRC ง 48
In order to stimulate the economy, Congress enacted Code ง 48 in 1962. The ITC was designed to encourage the modernization and expansion of productive facilities through the purchase of certain new or used assets for use in a trade or business. Over the years, many other changes were made to the rules, including reductions in the depreciable basis of property for which ITC was claimed, temporary suspensions, termination, reinstatement, and, ultimately, the general repeal of ITC in 1986.
TANGIBLE PERSONAL PROPERTY
Eligible ITC property is defined in former IRC ง 48(a)(1) with reference to IRC ง 38 (in fact, eligible property is often referred to as "section 38 property"). It included tangible personal property that was closely integrated into the taxpayer's trade or business. Land, buildings, structural components contained in or attached to buildings, and other inherently permanent structures, generally were not eligible for ITC.
SECTION 1245 AND SECTION 1250 PROPERTY
The benefits of the ITC were somewhat offset by the provisions of IRC Sec. 1245 and 1250, also enacted in 1962. These Code sections result in the conversion of capital gain to ordinary income on the disposition of a property, to the extent its basis has been reduced by an accelerated depreciation method. The definitions of property for purposes of Sec. 1245 and 1250 are very similar to that for ITC and make reference to the regulations under Sec. 48 and the definitions under Sec. 38 property. These interrelated Code sections and the regulations (38, 48, 1245 and 1250) provide the pertinent authority for determining eligibility for ITC.
The primary issue in cost segregation studies is the proper classification of assets as either ง 1245 or ง 1250 property. Accordingly, the ITC rules are critical in determining whether a taxpayer has classified property into the appropriate asset class.
INHERENT PERMANENCY TEST AND THE “WHITECO FACTORS”
Revenue Ruling 75-178, 1975-1 C.B.9 outlined several criteria to determine Sec. 1245 property classification. The classic pronouncement addressing inherent permanency was Whiteco Industries, Inc. v. Commissioner, 65 T.C. 664, 672-673 (1975). The Tax Court, based on an analysis of judicial precedent, developed six questions designed to ascertain whether a particular asset qualifies as tangible personal property. The questions were referred to as the “Whiteco Factors.”
It should also be noted, however, that movability is not the only determinative factor in measuring inherent permanency. In L.L. Bean, Inc. v. Comm., T.C. Memo, 1997-175, aff’d, 145 F.3d 53 (1st Cir. 1998), it was determined that, even though the structure could be moved, it was designed to remain permanently in place. Thus, it was determined to be an inherently permanent structure.
REPEAL OF ITC AND COMPONENT DEPRECIATION
Due to the significant tax benefits derived from ITC-eligible property, the use of component depreciation proliferated during the 1970's and created problems not unlike those faced today by taxpayers, practitioners, and the Service regarding cost segregation studies. The problem became so pronounced during the late 1970’s that Congress disallowed component depreciation as a method of computing depreciation for buildings, simultaneously with the enactment of ACRS in the Economic Recovery Tax Act of 1981 (ERTA) [see IRC ง 168(f)(1)].
In 1986, MACRS reiterated that the use of component depreciation was not allowable.
HOSPITAL CORPORATION OF AMERICA v. COMMISSIONER ("HCA") (1997)
A landmark decision, Hospital Corporation of America v. Commissioner, 109 T.C. 21 (1997)("HCA"), provided the legal support to use cost segregation studies for computing depreciation. In effect, this decision has reinstated a form of component depreciation.
In HCA, the Service took the position that certain property items were structural components of a building and that ง 168(f)(1) prohibited the use of a component depreciation method for computing depreciation on buildings (including structural components). However, Judge Wells ruled that the property at issue was ง 1245 property and rejected the Service’s argument. Accordingly, the court determined that ง168(f)(1), prohibiting component depreciation, applied only to ง1250 property.
The HCA ruling effectively reinstated a form of component depreciation for certain building support systems, such as the electrical and plumbing systems that directly serve tangible personal property. Therefore, cost segregation methodologies previously used to allocate the cost of a building between structural components and ITC property can now be used for ง 1245 and ง 1250 property.
CHIEF COUNSEL GUIDANCE (on method of accounting)
Chief Counsel issued further guidance to the field in the form of an advice memorandum dated May 28, 1999. One observation was -- a change in depreciation method is a change in method of accounting, requiring the consent of the Secretary or his delegate.
[Note, however, that the recent 5th Circuit opinion in Brookshire Brothers Holding, Inc. & Subsidiaries v. Commissioner, 320 F.3d 507 (5th Cir. 2003), aff’g T.C. Memo. 2001-150, reh’g denied (March 31, 2003), which was adverse to the Service, may impact cases in that circuit. The court affirmed the Tax Court decision that the regulations allow taxpayers to make temporal changes in their depreciation schedules, as well as changes in the classification of property, without the consent of the IRS. However, the 10th Circuit opinion in Kurzet v. Commissioner, 222 F.3d 830 (10th Cir. 2000), was favorable to the government on this issue. Clearly, the issue is unsettled. However, Treas. Reg. ง 1.446-1T(e)(2)(ii)(d)(2)(i), effective for taxable years ending on or after December 30, 2003, provides that a change in the depreciation or amortization method, period of recovery, or convention of a depreciable or amortizable asset is a change in method of accounting.
In general, it is the position of the Service that a change in depreciation method, recovery period, or convention for depreciable property resulting from the reclassification of property is a change in accounting method. Such a change requires the consent of the Commissioner (i.e., the taxpayer must generally file Form 3115, Application for Change in Accounting Method) and the adjustment to income is made pursuant to IRC ง 481(a). Accordingly, claims for adjustment based on a cost segregation study performed after the original return was filed should not be allowed (i.e., unless a Form 3115 has been filed).
The issue of whether or not changes in depreciation methods, conventions, or recovery periods constitute accounting method changes is unsettled due to conflicting court opinions. However, Treas. Reg. ง 1.446-1T(e)(2)(ii)(d)(2)(i) and Example 9 of Treas. Reg. ง 1.446-1T(e)(2)(iii), effective for taxable years ending on or after December 30, 2003, provide that they do constitute changes in method of accounting.
Taxpayers may conduct a cost segregation study on used property and then recompute its depreciation deductions for prior years.
Service Position on Method of Accounting
In general, it is the position of the Service that in the year an asset is placed in service, an accounting method is adopted relative to the depreciation method, recovery period, or convention for the depreciable property. In any subsequent year from the placed-in-service year, a change in depreciation method, recovery period, or convention resulting from a reclassification of such property, results in a change in method of accounting. Such a change requires the consent of the Commissioner (i.e., the taxpayer must generally file Form 3115, Application for Change in Accounting Method), and the adjustment to income is made pursuant to IRC ง 481(a). If a taxpayer has adopted a method of accounting, the taxpayer may not change the method by amending its prior income tax returns. See Rev. Rul. 90-38, 1990-1 C.B. 57. Accordingly, amended returns or claims for adjustment, based on a cost segregation study performed after the original return was filed (for the placed-in-service year), should generally be disallowed on the basis that the taxpayer is attempting to make a retroactive method change.
LOOK-BACK STUDIES
The correct procedure for a taxpayer to change its accounting method is the timely filing of Form 3115, Request for Change in Accounting Method. Pursuant to Revenue Procedure 2002-9, 2002-3 I.R.B. 327, a taxpayer may request automatic consent for the change.
It is the position of the Service that a change in recovery period is a change in accounting method. Accordingly, a taxpayer is required to obtain the consent of the Commissioner by filing a timely Form 3115.
LACK OF BRIGHT-LINE TESTS FOR DISTINGUISHING ง 1245 AND ง 1250 PROPERTY
A myriad of court cases has addressed the classification of property for ITC purposes. All of the cases are factually-intensive and quite often the opinions of the courts conflict. In addition, though the Service has issued numerous revenue rulings to address specific fact patterns, no bright-line tests have evolved.
In order to calculate depreciation for Federal income tax purposes, taxpayers must use the correct method and proper recovery period for each asset or property owned. Property often consists of numerous asset types with different recovery periods, which must be separated into individual components or asset groups having the same recovery periods and placed-in-service dates.
When the actual cost of each individual component is available, this is a rather simple procedure. However, when only lump-sum costs are available, cost estimating techniques may be required to “segregate” or “allocate” costs to individual components of property (e.g., land, land improvements, buildings, equipment, furniture and fixtures, etc.). This type of analysis is generally called a “cost segregation study,” “cost segregation analysis,” or “cost allocation study.”
Significant tax benefits may be derived from utilizing shorter recovery periods. The issues for Internal Revenue Service Examiners (Service Examiners) are 1) the rationale used to segregate property into its various components, and 2) the methods used to allocate the total project costs among these components.
The most common situation is the allocation or reallocation of building costs to tangible personal property. A building, termed "section (ง) 1250 property", is generally 39-year property eligible for straight-line depreciation. Equipment, furniture and fixtures, termed "section (ง) 1245 property", are tangible personal property. Tangible personal property has a short recovery period, thus, a faster depreciation write-off (and tax benefit).
Property allocations and reallocations are typically based on criteria established under the Investment Tax Credit (ITC). In a recent landmark decision, the Tax Court ruled that, to the extent tangible personal property is included in an acquisition or in overall costs, it should be treated as such for depreciation purposes. The court also decided that the rules for determining whether property qualifies as tangible personal property for purposes of ITC (under pre-1981 tax law) are also applicable to determining depreciation under current law. [See Hospital Corporation of America, 109 T.C. 21 (1997)] The Service acquiesced to the use of ITC rules for distinguishing ง 1245 property from ง 1250 property.
OVERVIEW
It is important to review the relevant legal history and the motivations of taxpayers to allocate costs to personal property. The legislative and judicial history of depreciation, depreciation recapture, and Investment Tax Credit (ITC) are closely related.
The Internal Revenue Code (IRC) has historically authorized depreciation as an allowance for the exhaustion, wear and tear, and obsolescence of property used in a trade or business or for the production of income (IRC Sec. 167 and the regulations thereunder.)
BULLETIN F
For example, IRS Publication Number 173 (also known as "Bulletin F") was published in 1942 and provided a useful life guide for various types of property based on the nature of a taxpayer's business or industry. Bulletin F identified over 5,000 assets used in 57 different industries and activities and described two procedures for computing depreciation for buildings:
Composite Method: A depreciation chart provided a composite rate for buildings, including all installed building equipment.
Component Method: Taxpayers could elect to depreciate the building equipment separately from the structure itself.
COMPONENT DEPRECIATION
In 1959, the Tax Court recognized the right of taxpayers to calculate depreciation using a component method for newly constructed property [Shainberg vs. Commissioner, 33 T.C. 241 (1959)].
Revenue Procedure 62-21, 1962-2 C.B. 418, superceded Bulletin F and provided safe harbor useful lives based on industry-specific asset classes for taxpayers that met the reserve ratio test (a complex provision).
Revenue Ruling 66-111, 1966-1 C.B. 46 (subsequently modified by Revenue Ruling 73-410, 1973-2 C.B. 53), addressed the use of component depreciation for used real property, in light of the decision in Shainberg. The ruling concluded that “When a used building is acquired for a lump sum consideration, separate components are not bought; a unified structure is purchased… Accordingly, an overall useful life for the building must be determined on the basis of the building as a whole.”
Revenue Ruling 68-4,1968-1 C.B. 77, concluded that the asset guideline classes outlined in Revenue Procedure 62-21 “…may only be used where all the assets of the guideline class (building shell and its components) are included in the same guideline class for which one overall composite life is used for computing depreciation.”
ASSET DEPRECIATION RANGE (ADR)
The elective ADR system, implemented by Revenue Procedure 72-10, 1972-1 C. B. 721, was developed for tangible assets placed in service after 1970. All tangible assets were placed in one of the more than 100 asset guideline classes (which generally corresponded to those set out in Rev. Proc. 62-21). The classes of assets were based on the business and industry of the taxpayer. In addition, each class of assets other than land improvements and buildings was given a range of years (called "asset depreciation range") that was about 20 percent above and below the class life.
If the taxpayer did not elect the ADR system, Revenue Ruling 73-410, 1973-2 C.B. 53, clarified that a taxpayer may utilize the component method of depreciating used property if a qualified appraiser "…properly allocates the costs between non-depreciable land and depreciable building components as of the date of purchase."
ACCELERATED COST RECOVERY SYSTEM (ACRS)
Congress enacted IRC Sec. 168 I 1981. The ACRS was intended to provide a less complicated method for computing depreciation (known as “cost recovery” by eliminating salvage value and specifying recovery periods of various classes of assets. In contrast to the elective ADR system, ACRS was mandatory and provided only five (later six) recovery periods. ACRS also allowed for a faster write-off of assets than had been allowed under previous rules.
MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS)
Significant modifications, generally less favorable to taxpayers, were made to ACRS by the Tax Reform ACT of 1986 (effective for property placed in service after December 31, 1986). Under the Modified Accelerated Cost Recovery System, the recovery period for buildings and structural components increased dramatically.
Revenue Procedure 87-56, 1987-2 C.B. 674, provides the class lives and recovery periods for most MACRS assets. These determinations are based on the specific industry of a taxpayer and the specific activity for which the assets are used.
EXPENSING PROVISIONS AND BONUS DEPRECIATION
Another incentive for allocating costs to shorter-lived property is the expensing provision of IRC Sec. 179. By maximizing the costs allocable to tangible personal property, the taxpayer can not only get an immediate write-off under ง 179, but also qualifies for a shorter recovery period under ง 168. Also, the 30-percent additional first year bonus depreciation allowance pursuant to ง 168(k), enacted by the Job Creation and Worker Assistance Act of 2002 (Public Law 107-147), provides even further incentive for taxpayers to segregate property into shorter recovery periods. The Jobs and Growth Reconciliation Tax Act of 2003 recently increased the bonus depreciation under ง 168(k) to 50 percent for certain qualifying property acquired after May 5, 2003, and placed in service before January 1, 2006. Section 1400L provides special rules for qualifying property used by a business in the New York Liberty Zone.
INVESTMENT TAX CREDIT - IRC ง 48
In order to stimulate the economy, Congress enacted Code ง 48 in 1962. The ITC was designed to encourage the modernization and expansion of productive facilities through the purchase of certain new or used assets for use in a trade or business. Over the years, many other changes were made to the rules, including reductions in the depreciable basis of property for which ITC was claimed, temporary suspensions, termination, reinstatement, and, ultimately, the general repeal of ITC in 1986.
TANGIBLE PERSONAL PROPERTY
Eligible ITC property is defined in former IRC ง 48(a)(1) with reference to IRC ง 38 (in fact, eligible property is often referred to as "section 38 property"). It included tangible personal property that was closely integrated into the taxpayer's trade or business. Land, buildings, structural components contained in or attached to buildings, and other inherently permanent structures, generally were not eligible for ITC.
SECTION 1245 AND SECTION 1250 PROPERTY
The benefits of the ITC were somewhat offset by the provisions of IRC Sec. 1245 and 1250, also enacted in 1962. These Code sections result in the conversion of capital gain to ordinary income on the disposition of a property, to the extent its basis has been reduced by an accelerated depreciation method. The definitions of property for purposes of Sec. 1245 and 1250 are very similar to that for ITC and make reference to the regulations under Sec. 48 and the definitions under Sec. 38 property. These interrelated Code sections and the regulations (38, 48, 1245 and 1250) provide the pertinent authority for determining eligibility for ITC.
The primary issue in cost segregation studies is the proper classification of assets as either ง 1245 or ง 1250 property. Accordingly, the ITC rules are critical in determining whether a taxpayer has classified property into the appropriate asset class.
INHERENT PERMANENCY TEST AND THE “WHITECO FACTORS”
Revenue Ruling 75-178, 1975-1 C.B.9 outlined several criteria to determine Sec. 1245 property classification. The classic pronouncement addressing inherent permanency was Whiteco Industries, Inc. v. Commissioner, 65 T.C. 664, 672-673 (1975). The Tax Court, based on an analysis of judicial precedent, developed six questions designed to ascertain whether a particular asset qualifies as tangible personal property. The questions were referred to as the “Whiteco Factors.”
It should also be noted, however, that movability is not the only determinative factor in measuring inherent permanency. In L.L. Bean, Inc. v. Comm., T.C. Memo, 1997-175, aff’d, 145 F.3d 53 (1st Cir. 1998), it was determined that, even though the structure could be moved, it was designed to remain permanently in place. Thus, it was determined to be an inherently permanent structure.
REPEAL OF ITC AND COMPONENT DEPRECIATION
Due to the significant tax benefits derived from ITC-eligible property, the use of component depreciation proliferated during the 1970's and created problems not unlike those faced today by taxpayers, practitioners, and the Service regarding cost segregation studies. The problem became so pronounced during the late 1970’s that Congress disallowed component depreciation as a method of computing depreciation for buildings, simultaneously with the enactment of ACRS in the Economic Recovery Tax Act of 1981 (ERTA) [see IRC ง 168(f)(1)].
In 1986, MACRS reiterated that the use of component depreciation was not allowable.
HOSPITAL CORPORATION OF AMERICA v. COMMISSIONER ("HCA") (1997)
A landmark decision, Hospital Corporation of America v. Commissioner, 109 T.C. 21 (1997)("HCA"), provided the legal support to use cost segregation studies for computing depreciation. In effect, this decision has reinstated a form of component depreciation.
In HCA, the Service took the position that certain property items were structural components of a building and that ง 168(f)(1) prohibited the use of a component depreciation method for computing depreciation on buildings (including structural components). However, Judge Wells ruled that the property at issue was ง 1245 property and rejected the Service’s argument. Accordingly, the court determined that ง168(f)(1), prohibiting component depreciation, applied only to ง1250 property.
The HCA ruling effectively reinstated a form of component depreciation for certain building support systems, such as the electrical and plumbing systems that directly serve tangible personal property. Therefore, cost segregation methodologies previously used to allocate the cost of a building between structural components and ITC property can now be used for ง 1245 and ง 1250 property.
CHIEF COUNSEL GUIDANCE (on method of accounting)
Chief Counsel issued further guidance to the field in the form of an advice memorandum dated May 28, 1999. One observation was -- a change in depreciation method is a change in method of accounting, requiring the consent of the Secretary or his delegate.
[Note, however, that the recent 5th Circuit opinion in Brookshire Brothers Holding, Inc. & Subsidiaries v. Commissioner, 320 F.3d 507 (5th Cir. 2003), aff’g T.C. Memo. 2001-150, reh’g denied (March 31, 2003), which was adverse to the Service, may impact cases in that circuit. The court affirmed the Tax Court decision that the regulations allow taxpayers to make temporal changes in their depreciation schedules, as well as changes in the classification of property, without the consent of the IRS. However, the 10th Circuit opinion in Kurzet v. Commissioner, 222 F.3d 830 (10th Cir. 2000), was favorable to the government on this issue. Clearly, the issue is unsettled. However, Treas. Reg. ง 1.446-1T(e)(2)(ii)(d)(2)(i), effective for taxable years ending on or after December 30, 2003, provides that a change in the depreciation or amortization method, period of recovery, or convention of a depreciable or amortizable asset is a change in method of accounting.
In general, it is the position of the Service that a change in depreciation method, recovery period, or convention for depreciable property resulting from the reclassification of property is a change in accounting method. Such a change requires the consent of the Commissioner (i.e., the taxpayer must generally file Form 3115, Application for Change in Accounting Method) and the adjustment to income is made pursuant to IRC ง 481(a). Accordingly, claims for adjustment based on a cost segregation study performed after the original return was filed should not be allowed (i.e., unless a Form 3115 has been filed).
The issue of whether or not changes in depreciation methods, conventions, or recovery periods constitute accounting method changes is unsettled due to conflicting court opinions. However, Treas. Reg. ง 1.446-1T(e)(2)(ii)(d)(2)(i) and Example 9 of Treas. Reg. ง 1.446-1T(e)(2)(iii), effective for taxable years ending on or after December 30, 2003, provide that they do constitute changes in method of accounting.
Taxpayers may conduct a cost segregation study on used property and then recompute its depreciation deductions for prior years.
Service Position on Method of Accounting
In general, it is the position of the Service that in the year an asset is placed in service, an accounting method is adopted relative to the depreciation method, recovery period, or convention for the depreciable property. In any subsequent year from the placed-in-service year, a change in depreciation method, recovery period, or convention resulting from a reclassification of such property, results in a change in method of accounting. Such a change requires the consent of the Commissioner (i.e., the taxpayer must generally file Form 3115, Application for Change in Accounting Method), and the adjustment to income is made pursuant to IRC ง 481(a). If a taxpayer has adopted a method of accounting, the taxpayer may not change the method by amending its prior income tax returns. See Rev. Rul. 90-38, 1990-1 C.B. 57. Accordingly, amended returns or claims for adjustment, based on a cost segregation study performed after the original return was filed (for the placed-in-service year), should generally be disallowed on the basis that the taxpayer is attempting to make a retroactive method change.
LOOK-BACK STUDIES
The correct procedure for a taxpayer to change its accounting method is the timely filing of Form 3115, Request for Change in Accounting Method. Pursuant to Revenue Procedure 2002-9, 2002-3 I.R.B. 327, a taxpayer may request automatic consent for the change.
It is the position of the Service that a change in recovery period is a change in accounting method. Accordingly, a taxpayer is required to obtain the consent of the Commissioner by filing a timely Form 3115.
LACK OF BRIGHT-LINE TESTS FOR DISTINGUISHING ง 1245 AND ง 1250 PROPERTY
A myriad of court cases has addressed the classification of property for ITC purposes. All of the cases are factually-intensive and quite often the opinions of the courts conflict. In addition, though the Service has issued numerous revenue rulings to address specific fact patterns, no bright-line tests have evolved.
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