See update below.
In a tacit admission that the new repair regs are nightmarishly complex, the IRS has issued a new “safe-harbor” procedure for allocating remodeling costs for restraurants and retail buildings between deductible repair costs and capitalized improvement costs.
Rev. Proc 2015-56 is available to
most retail buildings and to restaurants.
(UPDATE: Brian Coddington notes correctly in the comments that this procedure only applies to taxpayers with an “applicable financial statement.” These are SEC statements, audited financial statements, or statements supplied to regulators other than the IRS. This seemingly gratuitous requirement greatly reduces the potential usefulness of this procedure. Why the IRS would restrict simplification to just those taxpayers least likely to need it is beyond me. I missed the applicable financial statement requirement in my initial take on the rule. My apologies, and my thanks to Brian for correcting me. Brian’s comment goes beyond this issue and is worth reading in full.)
It excludes vehicle dealers, gas stations, manufactured home dealers and “nonstore retailers.” It applies to business that own their own buildings and to landlords whose buildings hold qualifying businesses.
Under the procedure, 75% of “qualified remodel-refresh costs” are deductible, with the remaining 25% capitalized. The amount capitalized is depreciated over the life otherwise applied to the building. That generally means a 39-year life, but if the building is “qualified restaurant property” or “qualified retail improvement property,” the life can be as short as 15 years.
At first glance, it seems like a much more useful set of rules than the repair regs we were all fretting about this time last year. The biggest potential downside is that Rev. Proc. 2015-56 requires taxpayers to forego “partial disposition” treatment for buildings covered by the safe harbor. The taxpayer also has to elect “general asset account” depreciation for the building covered by the safe harbor.
The election will be made on Form 3115 as “automatic” accounting method change, as newly-designated automatic change number 222. It is available for years begining on or after January 1, 2014. As automatic changes have to normally be made with a timely-filed return, I don’t think we can change already-filed 2014 filings, but I will be digging into the lengthy procedure, and will amend this as needed as I get to understand it better.
The insurance markets aren’t doing what the President told them to do.
First, Tyler Cowen, Further wounds for Obamacare: “To put it bluntly, I don’t think the mandate part of the bill is working. These are mostly problems which decay and get worse, not problems which self-correct.”
Next, Megan McArdle, Obamacare Insurers Are Suffering. That Won’t End Well:
What UnitedHealth’s action suggests is that the company is not sure it can make money in this market at any price. Executives seem to be worried about our old enemy, the adverse selection death spiral, where prices go up and healthier customers drop out, which pushes insurers’ costs and customers’ prices up further, until all you’ve got is a handful of very sick people and a huge number of very expensive claims.
This was part of a terrible, horrible, no good, very bad news cycle for Obamacare; as ProPublica journalist Charles Ornstein said on Twitter, “Not since 2013 have I seen such a disastrous stream of bad news headlines for Obamacare in one 24-hour stretch.” Stories included not just UnitedHealth’s dire warnings, but also updates in the ongoing saga of higher premiums, higher deductibles and smaller provider networks that have been coming out since open enrollment began.
I remember when we were told that the ACA would just get more popular over time as we all grew to love its benefits.
No, but they do make it easier to jack up tuition and administrative salaries. $23 Billion In Annual Federal Tax Credits For Higher Education Have No Effect On College Attendance (TaxProf).
Jana Luttenegger Weiler, Quiet Changes to Social Security Could Have Big Impact (Davis Brown Tax Law Blog):
The file and suspend option was and still is used by couples when one spouse, typically the higher earner, files for benefits but then suspends receiving his or her own benefits. This allows the other spouse to file and receive spousal benefits based on the higher earning spouse’s record for a certain number of years while the higher earning spouse delays benefits and earns delayed retirement credits. The result is larger benefits for the higher-earning spouse at age 70, but still allowing the lower-earning spouse to take benefits. This option has been eliminated — though there may still be time to file and suspend in the next 180 days and be grandfathered in for those who are currently eligible to do so.
Jana expects additional guidance soon.
Gretchen Tegeler, Many Iowa public employees are better off in retirement than working (IowaBiz.com). In some cases, we’re better off that they’re retired too.
Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015: #7: Decoding The Mortgage Interest Limitation, “Cohabitation, of course, is not limited to same-sex couples, and so the Ninth Circuit’s decision to allow each taxpayer who co-owns a house to claim an interest deduction on the full $1,100,000 of debt — provided they are not married filing separately — should be a welcome one for many.”
Russ Fox, Update on the Future of Daily Fantasy Sports:
I still think we will end up with a dichotomy within the states. States that are notoriously anti-gambling or have constitutional provisions against gambling (including much of the South: Texas, Florida, and Tennessee; Utah, and Hawaii) will ban DFS, either by Attorney General rulings or by court actions. Other states will regulate DFS. Some states will order the DFS companies to shut down until regulations are in place. A very small number of states will just ignore the issue, and leave DFS in an unregulated state.
A very small number of states realize that fantasy sports aren’t one of the major problems plaguing the republic.
Robert Wood, More Banks Spill Tax Evasion Secrets To Avoid Criminal Charges, Account Holders Beware. Bank secrecy is pining for the fjords.
Stephen J. Entin, Michael Schuyler, Some Tax Trip-Ups in the Democratic Debate (Tax Policy Blog):
Senator Sanders was asked how high he would raise the top tax rate. He answered, jokingly, that he would boost it a lot, although perhaps not to the 90% top tax rate in the Eisenhower Administration; that he, the Senator, was not as much of a socialist as Eisenhower! In fact, the top tax rate was 91%…
One result of Ike’s policies was that he presided over three recessions in his eight years in office. Presumably, the Senator would not want to repeat that outcome.
I think Bernie would be willing to take that price to stick it to the man.
William Gale, David John, Two Important New Retirement Savings Initiatives from the Obama Administration (TaxVox) These guys think the MyRA program is important.
TaxProf, The IRS Scandal, Day 925
Peter Reilly, Princeton University Will Have To Prove It Deserves Property Tax Exemption. I’d make them apologize for Woodrow Wilson first.