The Tax Cut and Jobs Act took effect on January 1, 2018. The new law retains Section 1031 for real estate exchanges. However, Section 1031 may no longer be utilized to defer taxes for transactions involving personal property. So, how will the personal property that is part of a building, and identified by a cost segregation study, be treated going forward? As of this writing, there is no clear guidance on this matter. At this point, one must assume that any such personal property identified via cost segregation study will also not qualify for deferral. However, any potential recapture can be offset by performing a cost segregation study on the replacement real property by use of accelerated first-year depreciation deductions. Accelerated first year depreciation deductions are more generous than ever, as the new law allows bonus depreciation on new AND used property. The bonus depreciation percentage is also increased to 100% through 2022. Therefore, any new or used personal property identified through a cost segregation study can be deducted 100% as depreciation expense if the property was acquired after 27 September 2017.
Revisiting Self-Rental Rules
As tax professionals, we often find taxpayers buying or building commercial real estate to house their primary business, rather than paying rents to a third party. This is a sound financial strategy, as it allows the business owner to participate in the appreciation of the real estate, have peace of mind concerning the location of his business and control the terms of the lease. Per IRC §469(c)(2), rental real estate is an inherently passive activity. However, if a taxpayer rents property to a trade or business in which he materially participates, net rental income is recharacterized as non-passive (§469-2(f)(6)). Net rental losses from the same activity generally remain passive. This being the case, the following potential risks exist when participating in a self-rental situation:
- Net income from self-rental activities cannot be arranged so as to be offset by net losses from other passive activities
- The netting of profits and losses from self-rental activities is not permitted
- Self-rental net income is not portfolio income, i.e., no deduction of investment interest expense is allowed and is not recognized as a source of investment income
Care must be taken by the tax preparer to understand the self-rental rules and properly categorize self-rental net income as non-passive and not include it as passive income on Form 8582.

July 2017 Tax Section News
Monthly tax news for July 2017 that includes a Letter from the AICPA Tax Executive Chair, Annette Nellen, the latest on tax reform, an update on Sec. 7345 passport legislation, and much more.

Attorney Client Privilege and Use of Kovel Arrangements FAQs
This series of frequently asked questions (FAQs) explains several privileges and protections that are relevant to a CPA who provides tax services, including the concept of attorney-client privilege, its implication on CPAs, and the use of Kovel arrangements

Are You Ready for a Tax Appeal by Phone? At Least You Won’t Have to Dress Up
When there is a disagreement with an IRS employee (such as a Revenue Agent or Revenue Officer) as to proposed adjustments to a tax return or proposed collection action, in most instances a taxpayer has the right to request a hearing with the IRS Office of Appeals.
In the past,

Making Virtual Meetings a Part of Your Practice
Building a successful tax practice includes nurturing a strong relationship with your clients and the effective management of your staff. The foundation for a strong client relationship is engaging in effective communication that serves to draw out the relevant information you need to provide

June 2017 Tax Section News
Read the latest on the future of tax technology from the Letter from the Director as well as the latest on PTINs and simplified portability election guidance

Letter from the AICPA Tax Executive Committee Chair: Embracing Uncertainties – The Reality (and Excitement) of Tax Work
The tax world is constantly plagued with uncertainties. Temporary rules are a standard feature of federal and state tax systems, and create uncertainty as to their extension or eventual passage into permanence. Because of laws that are often vague or incomplete, we cannot always answer client

Update on Sec. 7345 Passport Legislation
As part of the Fixing America’s Surface Transportation Act, Sec. 7345 authorizes the IRS to notify the State Department of taxpayers who owe a seriously delinquent tax debt. The IRS certification will request action for denial, revocation, or limitation of the passport

Partnership Audit and Adjustment Rules
As result of the Bipartisan Budget Act of 2015, Congress enhanced the IRS’s ability to audit large partnerships. The changes are expected to dramatically increase the audit rates for partnerships and will require partners to review and possibly revise their operating agreements. Here is