How To Effectively Manage Your Commercial Property Taxes

AUTHOR:  Andrew Hudson, Business Analyst & Client Relations ADDITIONAL CONTRIBUTORS:  Bret Baue, Vice President, Enterprise Services

EXECUTIVE SUMMARY

While the commercial property industry is positioned for substantial gains with the recent legislation, the filing complexities tax departments face could leave potential profits unchecked for many corporations. As a part of its robust technology suite, Fischer has launched a new interactive dashboard solution designed to proactively plan for upcoming deadlines and automate historical data analysis to reduce costly late penalties. The organic reporting module, available through the Visual Manager product solution, was developed in direct response to shared department challenges among fortune 500 corporations. The dashboard includes annual trends and the tracking of key corporate tax elements such as late payment penalties and upcoming fi ling reminders.  Comprehensive data tracking enables companies with complex portfolios efficiently manage their corporate taxes and understand the impacts of their real estate activities. According to a recent survey conducted by Thomson Reuters, 43% of tax professionals indicated compliance regulations and reporting as their biggest corporate tax challenge, followed by data management at 27%.  The IRS can impose a 20% accuracy penalty alone under Sec. 6662. Tax technology implementation is the key to maximizing opportunity amidst an uncertain market and avoiding unnecessary cost. 

HISTORY

U.S. commercial property valuations, despite economic uncertainty across multiple verticals, remains stable and one of the most highly coveted markets globally. Higher relative yields and price appreciation potential, naturally make it an easy investment option. More importantly, an open window of capital gains with having the proper tools available to assess new profi t potential. Here’s a brief overview of new regulations impacting commercial real estate:

NEW DEDUCTIONS
Starting this year, investors and shareholders now qualify for a 20 percent tax deduction on partnership, LLC, and other pass-through income. Combining this deduction with the ability to carry over certain losses can significantly trim your tax bill. There are some exceptions to this 20 percent deduction that automated prompts such as ones in Fischer’s Visual Manager can help detect. 

EXPENSING
Previously, the limits on marked expenses capped at $500,000, however, the new tax law doubled this threshold to $1,000,000. Section 179 of the Internal Revenue Code covers depreciation deductions for commercial real estate owners. This section allows taxpayers to deduct as expenses the cost of certain property rather than capitalizing these costs. According to reports, this signifi cant increase was designed to encourage business owners to invest and expand their holdings instead of preserving capital for a rainy day.  

1031 EXCHANGES  
The 1031 exchange provision will continue to allow real estate sellers to defer the imposition of capital gains taxes on the sale proceeds are given that they re-invest proceeds in another property. Additionally, this policy helps corporations leverage your assets while deferring capital gains taxes or even avoiding them entirely. Albeit monotonous to manage the varying exceptions, this is yet another area where reporting tools help detect opportunities. With numerous advantageous to consider, data oversight and accurate evaluations will require multiple layers of detection. Property taxes can amount to a substantial share of the annual operating costs for income-producing properties and any savings go straight to the business’ bottom line. For many corporations, historical M&A activity and their legacy systems make tax data management a complex and time-consuming process.  23% of tax professionals reported that data volume and inefficiency gathering data is an even bigger problem than prior years. As a result, companies are recognizing the need for a technology solution to help keep pace with growing demands.

OVERVIEW OF FISCHER SOLUTIONS

With Fischer’s long-standing industry expertise in real estate, the Visual Manager product provides a customized solution to reduce excess expenditures and improve the tax auditing process. Visual Manager ties directly to tax data from the client’s portfolio management software and funnels it into a living dashboard such as the one shown to the right. This particular report is a high level overview of annual taxes paid. This portfolio has had increasing tax expenditures over the previous 8 years before focusing on reducing those expenses which resulted in a tax decrease in 2017, the first decrease since 2009. Each of these reports are interactive to the click, allowing the user to select a year and see the expenses within that year grouped by the types of projects performed. This can shed light on any potential peculiar changes in tax amounts. In 2015, shown to the right, that majority of the taxes were paid on expansion projects which explains the increase in total real estate taxes for that year. In the next page of the report, Visual Manager automatically detects increases in tax expenses from one year to the next on individual properties that exceeds a predetermined threshold for acceptance. Anytime a property has an increase over X%, it will fl ag that property for a desktop audit. This report aims to prevent an organization from being overcharged on any given property. Users responsible for monitoring these reports then have the ability to appeal a charge or not based on their own research.   A “tax calendar” provides the information needed to plan for upcoming tax bills. Users can not only see which bills are coming due, but also the history of those bills in the past to set an expectation level for the upcoming bill. In another report Visual Manager automatically detects properties where tax payments that should have been made already may have been missed. Users validate whether or not a payment was in fact missed and, if so, begin the process of rectifying the situation. This can avoid costly late penalties and allows for companies to be proactive with the reimbursement process. Each organization generally uses different systems and methodology for tracking this kind of data and as such each implementation varies in regards to time required. In general however most implementations can be completed in 60-90 days. All of the data provided is stored and protected on sophisticated data storage systems to ensure the highest level of security. Visual Manager is compliant with SOC 1 which is renewed annually.

THE BENEFIT

Automated tax reporting components provide an immediate benefi t to real estate departments of all sizes and complexities, especially in the current market. It empowers real estate departments to identify areas of opportunity as well as manage impacts against organizational goals.

CALL TO ACTION

Every organization should be striving to educate their departments about the impact of real estate taxes and in order to do so effectively, they should be identifying existing trends, setting corporate goals, proactively managing their activities against those goals, and seeking out relationships that best support them in achieving their corporate initiatives. Fischer has a proven track record of providing companies with the tools to help them in these endeavors. With a combined industry expertise and customized software solutions, Fischer’s affiliates have actionable insights for decision making in their respective business verticals. Contact us today to learn more about our various corporate offerings.

ABOUT FISCHER

Fischer is a leading global corporate real estate fi rm that provides consulting, brokerage and technology solutions to corporate real estate users looking for a conflict-free broker for their real estate needs. Founded in 1985, Fischer helps clients get the most out of their real estate portfolios and activities by applying its in-depth knowledge of strategic influences to decisions that impact every aspect of their business. As exclusive tenant representatives and corporate real estate consultants for many of the world’s largest companies, Fischer delivers results through deep expertise in portfolio management, strategic planning, acquisitions, dispositions, project management, transaction and construction management, capital markets, sale-leasebacks and technology.

RESOURCES

  • Are you following the most recent global business trends? Don’t worry – we are. Thomson Reuters. 2018. 14 May 2018.
  • Commercial Real Estate Outlook 2018. Deloitte. 2017. 14 May 2018.
  • Greatest Corporate Tax Challenges for Tax Professionals. Thomson Reuters. 2016. 14 May 2018. Murphy, Bill. How Federal Tax Reform Will Impact Commercial Real Estate. 2018. Raisal. 14 May 2018.
  • Schnee, Edward J. Tax preparer mistakes: Taxpayer penalties and the tax treatment of indemnity payments. The Tax Advisors. 2017. 14 May 2018.