Archive for June, 2009
Commercial Loans: How Mezzanine Debt Closes the Deal
Posted by admin in commercial loan on June 30th, 2009
This is the “answer” to a question I received this past week concerning a class of commercial real estate loans called “mezzanine” debt. If you’ve never heard of it, don’t worry. It’s usually used by fairly substantial commercial real estate developers and investors in situations where the existing debt doesn’t go far enough to get the property financed. Mezzanine debt is the modern-day equivalent of second trust deeds.
First, you need to understand that “modern” commercial lenders are a jealous lot: Most of them, whether bank, CMBS* mortgage bank, and sometimes life insurance companies won’t allow a junior lien to be recorded against a property where they have a first trust deed. There are several reasons for this, but the bottom line is that real estate investors would have needed a great deal of cash to get larger transactions done until the mezzanine lenders showed up. Here’s an example:
A real estate investor has owned a large shopping center for 5 years and wants to sell it. When he bought it, he got a 75% LTV loan of $6 Million on his $8 Million purchase price using a Conduit* loan from a mortgage bank. Rates went down from the time he bought it, and it has appreciated to $16 Million in the same time, and his commercial loan balance is now $5.5 Million. Because this is a Conduit loan, our seller would face a prepayment penalty in the range of $600,000 to $1 Million! And since they don’t allow second trust deed on the property, the Buyer would have to come up with over $10.5 Million to buy it! Not.
Mezzanine mortgage lenders get around this problem by lending on collateral other than the property. Commercial loan Conduits require borrowers to create a special entity, usually a LLC, to own the property to protect them in the event the borrower files for bankruptcy. The Mezzanine mortgage lender uses the membership interests of the LLC as collateral for their loan instead of the property. So in our example, the Mezzanine lender steps up with a loan as large as $7.3 Million (this would bring the combined loans to 80% of the purchase price), depending upon the lender’s debt service requirements. Voila! Purchase accomplished!
Mezzanine lenders also play an important role in large construction loans, too. Unfortunately, these types of commercial loans aren’t available to regular mortals. The smallest Mezzanine loans tend to be in the $2 Million the $3 Million range. But it’s good to know they’re there when you do need one!
*CMBS: Commercial Mortgage Backed Securities, usually arranged by major Wall Street investment banks who are referred to as “conduits.”
Repossession
Property in Phuket - Investors Turn to the East
Posted by admin in lease shop on June 30th, 2009
With recent months seeing relative instability and poor returns from overseas property investment, the past twelve months have seen property investors going through a period of reflection, as they look to see which international markets will offer them the long term returns of investment they are looking for. Issues such as increasingly fragile economies and oversupply in traditional markets, have seen investors starting to look at markets such as Phuket with a view to them offering higher yields over the next few years.
Larger than Singapore, and located approximately 860 kilometres south of Bangkok, Phuket is one of South East Asia’s premier tourist destinations. Friendly locals, good infrastructure, exceptional cuisine and a tropical climate have resulted in large numbers of international property investors moving into Phuket. As such, the island is rapidly becoming a regional hub of international property investment, offering relative stability in uncertain times.
Recently Phuket has seen some exciting, and genuinely innovative property development projects being launched on the island. Projects such as the Royal Marina and the Laguna Village are well conceived developments, which prove attractive to overseas investors. These projects offer a genuine lifestyle choice for people, offering waterside living in a beautiful and friendly environment.
As well as the favourable local conditions for investors, the second factor affecting this growth in demand for property in Phuket is the increasing acceptance of overseas property investment in Thailand by the local authorities. At present, Thai law states that a foreigner may not own the freehold to the land, however they are able to purchase a freehold title for the building which sits on the land. In effect, the resulting purchase agreement will see the purchaser buying the freehold title for the property, and a separate 30 year lease on the land itself. In this instance, it is common for the contract to provide an option to extend the lease a further two times, each for thirty years, effectively giving a 90 year lease.
Property legislation in Thailand is slightly different for investors wishing to purchase a condominium, where a developer is likely to offer the purchaser both a leasehold and freehold option. Under Thailand property law, foreign ownership of a condominium must be under the allow limit of 49%, and in this instance ownership on a freehold basis can be offered. However if the block is currently over the 49% foreign ownership quota, then the property will be offered on a leasehold basis with the option to extend twice for periods of 30 years.
Whilst this method of property legislation may seem time consuming and complex, it is commonly practiced throughout Thailand, and it is believed that the authorities are currently looking at streamlining this process. As with all property purchases overseas, the requirement for a solid understanding of local legislation makes the choice of a good, multi-lingual solicitor a key factor to a smooth transaction.
These more favourable conditions, coupled with the stable political and economic climate currently being experienced in Thailand, investors are seeing long term returns from a market which currently represents good value in the property market.
The market for property in Phuket is gaining popularity, but still has a long way to go before reaching maturity. With a range of property on offer in the region, Phuket has something to cater for every budget and taste.
Sell House Quick
Commercial Loan Refinancing Refi
Posted by admin in commercial loan on June 30th, 2009
Commercial loans once acquired are often never reexamined to insure that the best financing value has been negotiated. It is an understatement to say that the business world is dynamic and economic conditions are always evolving. Changes often occur that might indicate the need for the reevaluation of a company or individual position with respect to commercial loans. There are several important reasons that might cause one to consider refinancing of a commercial loan. A few of these reasons are enumerated below;
Taking advantage of equity gains that may be realized which could enable the borrower to free up capital for other expenses or ventures. This option is often referred to as “cashing out” and offers an opportunity to invest the equity that has accrued in a manner that offers a higher return.
Interest rates may have declined or another commercial lender is offering a lower rate and it is prudent to take advantage of reduced payments. Reduced loan payments obviously affect cash flow and enhance one’s financial position.
Another acquisition may provide an opportunity to combine loans and recognize increased cash flow or take advantage of more favorable terms and conditions. Combining notes may offer the opportunity to take advantage of the equity that has built up in one note to obtain more favorable financing for another. It also offers an opportunity to strengthen a financial statement by closing out a note under favorable conditions.
Taking advantage of an opportunity to lengthen the period of the loan and realize an increased cash flow as well as to take advantage of tax concessions.
It may be appropriate to pay down some of the note and renegotiate terms and conditions to strengthen one’s financial statement.
These potential reasons have been highlighted for illustrative purposes, but there are other reasons that may cause one to seek commercial loan refinancing. Each individual or company circumstance will dictate differing responses. As with any decision, an evaluation of the advantages and disadvantageous is necessary to insure that the effort is worth the reward. One needs to assess the total impact of the decision with regard to tax implications, the advantages of cashing out equity, the effect on one’s present financial statement, the opportunities for additional investment and the actual savings that may be available.
It is important to note that a detailed analysis may be required to thoroughly assess the impact of potential refinancing. Loan covenants may need to be revised or renegotiated and should be closely examined to insure that the maximum business flexibility is maintained or enhanced. The bottom line that applies to refinancing is to acquire a business advantage that might go unfulfilled without this refinancing action.
In summary, a review of the status of commercial loans may present an opportunity to refinance and realize a gain that may have been previously overlooked.
Find Commercial Loans using our free Commercial Loan Application to compare rates and submit your information to multiple commercial lenders. GlobalBX works with top lenders in commercial real estate and business financing. We have over 300 commercial real estate lenders, business and construction lenders as well as private equity groups waiting to help you. Best of all, GlobalBX is FREE!
Find Commercial Loans using our Commercial Loan Application to compare rates and contact multiple commercial real estate lenders at GlobalBX for FREE!
Quick Property Sale
The Right Restaurant Supplier Can Make All the Difference
Posted by admin in restaurant sale on June 30th, 2009
Last month, I opened my third restaurant in twelve years. Anyone who knows anything about the restaurant business will tell you that success of that nature isn’t easy to come by. I started out with a small diner on a not so busy intersection. By offering impeccable service, great food and a friendly decor, I have been able to expand my business to include additional eateries in higher traffic locations while maintaining a healthy profit margin. The truth of the matter is, however, that I certainly couldn’t have done it alone. I have a great staff at all of my locations, some of the best food distributors in the area and loyal customers that recognize the value of a well cooked, well priced, timely meal. One other valuable asset I have that so many overlook is a good business relationship with my full service restaurant equipment supplier.
Good equipment suppliers understand the equipment needs of their customers and can help ensure that you receive the best units for your particular circumstances. The better equipment suppliers out there will also offer design services for streamlining your kitchen, which will help you with efficiency and make life easier on your kitchen staff. The company I use has been a lifesaver in this respect. Anyone can sell you a product, but so few are willing to tell you where to place it, how to maintain it and ways that you can save money by getting the best product for your individual space. Restaurant owners shouldn’t have to wonder if they are using the right equipment and using it correctly. Because of my business relationship with an excellent supply house, I know everything there is to know about my equipment and how to keep it in excellent condition. I have my kitchen set up in such an ergonomic and efficient way that it allows my staff to do their work without having to worry about traversing the entire room and running into one another.
I don’t take any business relationship for granted, but especially not this one. I know that if I have a failure, need advice on a new station or just want repair information, one phone call can solve it. The value of that is something I can count on to help me succeed.
Quick Property Sale
Residential Property - How To Rent Out Your Residential Property and Earn Passive Income
Are you thinking of becoming a landlord and earn passive income by collecting monthly rentals from your tenants? When it comes to real estate investing, you can make money by either selling it at a higher price or renting it out.
If you have invested in a residential property, the next logical step is to find suitable tenants to rent units from you. To market your residential property is not as hard as you think. You can place ads in newspaper, shopping centres, and bus stops. Another way is to organize an open house for potential tenants to view the units.
Why do so many people want to become landlords? It is because the best benefit of being a landlord is that you will be able to earn passive income while still holding ownership over your residential property. This is an ideal position that most investors want to get into. However, although it may sound great, there can be problems too. When you are leasing out your property, you may meet unreasonable and bad tenants that skip payments or damage your property during their stays. When you are dealing with these kinds of tenants, it is best to kick them out as soon as possible to reduce the damage. It is very frustrating to deal with these tenants as you will have to spend money on repair and lose out the profits that would have been earned while you find other tenants.
Therefore, to prevent yourself from dealing with bad tenants, the first thing that you must do is to screen them thoroughly. Ask them to fill up application forms so that you will have the necessary information to do a background check on them. You should also evaluate their ability to pay so as to make sure that they will not skip any payments.
Once you have found the right tenant, you need to draft out a form to protect yourself legally. This legal form is to lay out any terms and obligations you provide to the tenant or that you want your tenant to follow. You should also include the penalty for any damage done during his or her stay.
With this legal form, you are now legally protected from any disputes that often occur between you and your tenants. With the terms and conditions stated very clearly in black and white, either party is clear of the consequences if any one of the terms is not met. It is always best to clear up any question before signing of contract with your tenant.
Real Estate Professionals
Uae Property Guide, Part 1 Of 8 - The United Arab Emirates
Posted by admin in lease shop on June 28th, 2009
The United Arab Emirates (the UAE) is geographically situated in the Middle East on the Persian Gulf, bordered by Saudi Arabia and Oman. The UAE consists of seven sovereign states called emirates, these are: Dubai, Abu Dhabi, Ajman, Fujairah, Ras al- Khaimah, Sharjah and Umm al- Quwain.
The UAE is a unique nation where you can see the best of many seemingly opposite influences and cultures balanced to produce a wonderful modern country with something for all. Modern cities with world-class hotels, facilities and wonderful shopping are balanced against the traditional Bedouin lifestyle, in a nation that supports both conservative Islamic and western liberal views equally.
The UAE has, through recent property booms due to the granting of freehold ownership rights to foreigners, become one of the worlds leading property investment hot spots. Freehold property ownership in the UAE was unavailable to expats prior to 2002; until that time only 99 year leaseholds or rental of property was allowed by law to non GCC (Gulf Cooperation Council) or UAE citizens. Dubai lead the introduction of freehold purchases to foreigners, starting in 2002 when a decree was issued by crown prince General Sheikh Mohammed bin Rashid Al Maktoom of Dubai which allowed the purchase and ownership of free hold property in designated areas of Dubai. In 2006 Law 7 - Dubai’s property law was passed, this law formally reinforced the ability of non GCC or UAE citizens to purchase freehold land; implemented the property registration office of Dubai Lands and Properties Department, set this departments jurisdiction and outlined the general rules, definitions etc of property ownership.
The opening of Dubai’s property market in 2002 lead to a lot of interest in not only Dubai but the whole of the United Arab Emirates by investors; this interest has not been lost on the other Emirate States with Ras Al Khaimah being the first emirate after Dubai to allow foreign ownership. Ajman the smallest emirate has allowed foreign freehold ownership since 2004.
The remaining emirates allow various degrees of foreign ownership. Sharjah does not allow freehold ownership to expats but does allow 99 year leaseholds. Abu Dhabi has similar laws with 99 year leaseholds and 50 year renewable surface ownership agreements as the only options for foreign property investors. Conversely Umm al- Quwain does allow foreign property ownership although ownership of the land is prohibited.
Fujairah has only announced one development with freehold rights although they are currently drafting property legislation which is believed will allow foreign freehold ownership.
All of the freehold ownership in the UAE is in areas or individual developments that have been specifically designated by the governments of the individual emirates for possible foreign ownership; the emirates have not been opened to blanket foreign ownership as we are used to in the west.
Investors also need to be aware that ownership of a property in the United Arab Emirates does not automatically entitle the property owner to permanent residency visas, nor does it automatically entitle them to be able to work, although it is possible to work under the sponsorship of an employer.
Quick House Sale
It’s Open Season for Dubai Shopping
Less than a century ago, Dubai was a small fishing village, a place roamed by Bedouin tribes and settlers who crowded around the banks of the creek. Today, Dubai is an extremely popular tourists destination and an important global economic player. If we take into account the fact that when Europe was being faced with the industrial destruction brought about by World War I Dubai didn’t even have running water, the dramatic changes that this emirate has experienced are all the more surprising. Dubai attracts tourists and expatriates alike, and ever since oil was struck in the 1960s, the city has made a spectacular breakthrough. The economy is high propelled by tourism, but also by expatriates coming to work in Dubai. What strikes about the city is its cosmopolitan nature, which prevents any ethnic tensions from developing. Only about twenty per cent of Dubai’s population is ethnically Emirati, and this diversity has turned Dubai into one of the world’s most cosmopolitan regions.
One thing is for sure: they definitely knew how to handle and channel the oil wealth, and this shows with the order and structure of the city. The dramatic evolution from the small fishing village to the gleaming office buildings and sweeping skyscrapers, which occurred in less than one hundred years, seems to be only the beginning. Grand projects are ahead for Dubai, including the building of three hundred islands in the shape of the countries of the world, altering the course of the Creek and widening it, building the world’s tallest tower and a new airport, or building the largest shopping mall in the whole Middle East.
In spite of the regional instability and the rise of the Al-Qaeda, which represents a threat for Dubai tourism, the number of tourists who choose to spend their holidays in this city is increasing by the year. And after all, this comes as no surprise, given the idyllic climate in Dubai, with typically no more than five days of rainfall a year.
There are many tourist attractions in Dubai, and shopping is certainly one of them. In fact, this city can easily be referred to as the shopping capital of the Middle East. Dubai shopping is possible in a wide range of malls and souks. ‘Souk’, the Arabic word for market, refers to a place, which is usually specialized on certain products, and where you are expected to barter when shopping.
Dubai shopping is a major attraction for tourists, and investors made sure that the consumers every need would be catered to. There are so many shopping malls in Dubai that even seeing all of them would take a very long time, much less doing some actual shopping in each of them. Most Dubai shopping centers are open form 10 am to at least 10 pm, except fro Fridays, when they are not open in the morning and early afternoon. Dubai shopping is probably most attractive for the rare opportunity it provides, namely that of purchasing top brand products cheaper than anywhere else, due to its duty free laws and low import taxes.
At this point, all you have to do is book a flight to Dubai, and a room in a hotel, or rent an apartment, and once you’re there, you can shop all you like, or all you can afford. The good news is that all these reservations can be made online, so you a virtually a few clicks away from Dubai shopping. Can this get any better?
As amazing as shopping in Dubai may be, this is far from being the only reason why tourists choose to travel to this emirate. The exquisite hotels and restaurants, the fabulous weather, the relaxed financial environment, these are just some of Dubai’s attractions. As true as it may be that the further developments in the Middle East are likely to influence Dubai’s economic situation and tourist industry, one thing’s for sure: the city is certainly on the rise for now, and it represents a destination that you should not miss, at least once in a lifetime. If leaving your continent seems like too much of an adventure, and the different religion and culture seem a little scary, you can rest assured. Almost everyone speaks English there, and all the information you need about the emirate can easily be found online, including hotels, restaurants, clubs and pubs, and flights to Dubai.
Finding a cheap flight to Dubai and discount for accommodation is now possible if you search the Internet and make the most of what travel agencies have to offer. Be it charter flight, economy class, or first class, you can book a flight to Dubai online, and all you have to do is get on board and prepare for an amazing experience, which will certainly determine you to go there again.
For more resources about Dubai shopping or even about flight to Dubai please review this weblink http://www.dubai.com.au
Rent Back
The Value of Using a Unique Selling Proposition
Posted by admin in restaurant sale on June 28th, 2009
USP’s were developed in the late 1950’s/early 1960’s by Rosser Reeves. Over the decades, they have been shown to be a highly effective means for advertising. This has held true for giant corporations and even small businesses and service professionals.
Some of the more popular USP’s have been used for decades. I’m sure you’ll recognize these two…
“Wonder Bread helps build strong bodies in eight ways.”
“Certs breath mints with a magic drop of retsyn.”
USP’s are everywhere, if you take the time to notice. Keep learning about this positioning tactic and you’ll probably never look at advertising the same!
In addition to being used in highly effective advertising campaigns for the last fifty years, America’s highest paid marketing consultant, Jay Abraham, also recommends their use. He’s helped giant corporations like Holiday Inn and Taco Bell with their marketing campaigns as well as small businesses.
Jay Abraham is also a prolific writer who has put his marketing genius down on paper as well as putting on seminars (if you get the chance to purchase any of his books or go to one of his seminars, I’d recommend it). He never falters to suggest the use of USP’s for any type of business in any of his courses or seminars.
So whether you offer a service or a product, you need to find a way to differentiate your business from your competitors. It doesn’t matter if you are a dentist, hairdresser, realtor, accountant, doctor, lawyer, graphic designer, etc…
-or-
If you offer tools, cleaning supplies, websites, ‘how-to’ books, seminars, or anything else imaginable…
The use of a unique selling proposition in your business will only stand to benefit you.
Here is what a profit pulling USP will allow you to do.
* Find a niche and position yourself as the ONLY choice for that niche.
* Place your product or service on a different level than your competition, catapult you to higher plane of business and enable you to sell in a vacuum (i.e. no direct competition).
* Protect you from market fluctuations.
* Break free from mindless advertising and get your product or service remembered more than any other in your market.
* Grant a stronger preference for your company’s products and services so you can charge more and customers will gladly pay your higher price.
Sound interesting? Well I certainly hope so.
Examples of Profit Pulling USP’s
Last time, I gave you some proof on the value of using a unique selling proposition. In this part of the ecourse, I’d like to provide you with some examples of profit pulling USP’s.
But first, I want you to be aware of the power of a USP. You may want to think of a USP as a marketing strategy. Without a well thought out strategy, your advertising will send out random messages that don’t have a common theme.
This will prevent it from being as effective as it would have been if you had a strategy in place.
It’d be like a basketball team with no game plan. With no strategy, the players will scramble around on the court, aimlessly, and their game will surely suffer. Even if they are the top players in the world, without a coherent game plan, they probably don’t stand a chance against opponents with a well thought out strategy.
As you are hopefully starting to see, it is difficult to have any type of coherent marketing message or “game plan” without a USP. Most businesses are left struggling to attract new clients by shouting out, “we’re the best”, or “buy from me”.
So how do the experts do it?
Well, I’ll give you a couple of examples of well known USP’s. First of all, let me say that it’s easy to gloss right over the power of these USP’s because we are so familiar with them. But within each of them is the key to multi-million dollar advertising campaigns.
While a multi-million dollar campaign is probably not what you’re after, pointing out what makes these timeless USP’s tick is still very important.
So let’s give it a go and start with Head & Shoulders -”Healthy, beautiful, dandruff free hair.”
If you’ve ever been to the shampoo aisle at the supermarket, you’ve seen it. And there are literally hundreds of shampoos to choose from. So when Head & Shoulders came out, who would’ve noticed, right?
Wrong. Everybody noticed because Head & Shoulders targets people with dry, flaky scalps. People with dandruff. And this made all the difference to their campaign.
Without its dandruff fighting power, Head & Shoulders would just be another shampoo.
Can you see the power in selecting a target audience; a niche?
Of course, people who don’t have dandruff aren’t going to be as interested. But Head & Shoulders practically has a monopoly on the dandruff crowd –and have for decades. They were the first (to my knowledge) to cater to people with dry scalps and they are still going strong today.
It’s a unique concept and although it seems obvious now, it was highly creative at the time.
Papa John’s -”Better ingredients. Better pizza. Papa John’s.”
Papa John’s is owned by John Schnatter. His pizzeria would have just been another local pizza joint if not for his unique positioning in the marketplace. He wanted to stand out, and he did.
He follows through on the promise and has succeeded tremendously. Who would have thought having the best pizza ingredients would have been such a key to pizza success?
Do you also notice how this USP implies that other pizza restaurants are not using the freshest ingredients? This packs in an extra powerful punch.
Notice how either of these companies could have chosen to simply say “we’re better”, but they didn’t. Instead, they took it much further by being specific.
Hopefully, you are starting to see the power of a USP. You don’t want to be just another dentist, mechanic, Laundromat, or just another marketer. You don’t want to offer just another set of tools, another “how to” book, or another cleaning detergent. You want to stand out!
Quick Property Sale
Leasing Vs. Buying Card Printing Equipment
Posted by admin in lease shop on June 27th, 2009
Leasing is almost similar to renting; however, usually it is an agreement yielding use of possession in a certain period of time. Buying however, is fully purchasing the said possession; no certain period of time or agreement on when will you return it, since you were already given the right to own it the moment you handed the payment.
Some would prefer leasing over buying. Some would say that subconsciously, you are losing more money in leasing, so they prefer buying instead. But which is more appropriate to use? Both have its advantages and disadvantages, actually, fair and square when you look at it in a different perspective.
Cars, equipments and other expensive items are favorable when leasing. But not when that item is consumable. Usually, it depends on the buyer or leaser too on what way he will use the product, but what if the case is that of card printing equipment? What would be more suitable? Leasing or buying?
Conditions that are favorable for leasing would include the following:
• When the recent year capital budget is not sufficient to sustain the procurement of the asset.
• When there is a high probability that the asset will be outdated before it is fully depreciated.
• When that particular asset would only be used for a short time, maybe for an occasion or two, and then, no more.
• When that particular asset always needs maintenance but you or your company doesn’t have enough resources to do so.
• When you or your company can’t manage to hold debt on the balance sheet, especially when you are after your company’s good reputation on its customers.
• Leasing provides a leaseholder with better structuring suppleness.
• When equipment is leased, a trade establishes an added line of credit with its lessor.
In leasing a card printer equipment, many advantages are up to the job, but sometimes it depends on the company you are planning to lease or purchase your equipment. Even so, here are some benefits of leasing a card printer equipment:
• As always, leasing conserves money for future use.
• You won’t be shocked with the down payments since they are not that high in terms of pricing. Sometimes no down payment is required.
• Another plus is that you don’t have to pay for annual fees.
• Over the terms of lease, there are set monthly payments.
• Some companies offer tax advantages
Leasing vs. Buying is actually a tough job to analyze on. It requires a lot of reasoning since you have to decide on what you will do. However, based on researches leasing the printing equipment is far more beneficial than buying especially when you or your company has reached its limitation for money flow.
Real Estate Professionals
New Business Depreciation for 2008
Posted by admin in lease shop on June 27th, 2009
As we come to the close of 2008, this economy has caused a volatile year for many. Many Americans have had to scramble to make a living and adjust to changing times. With higher gas prices and costs of living escalating to new levels, many businesses are on the brink of extinction. For the lucky few, that have had a profitable year, it is time to maximize the situation and plan to minimize the tax burden. The government has made some substantial changes in 2008 for investing in the U.S and we are going to look at the depreciation area for qualified acquisitions.
The following is one of the incentives that is available for 2008:
2008 Changes for Eligible Depreciation ( Look at the example below)
Increased Section 179 limits. The maximum section 179 deduction you can elect for qualified section 179 property you placed in service in tax years that begin in 2008, has increased to $250,000 ($285,000 for qualified enterprise zone property and qualified renewal community property). This limit is reduced by the amount by which the cost of section 179 property placed in service in the tax year exceeds $800,000. For qualified section 179 Gulf Opportunity (GO) Zone property placed in service in certain counties and parishes of the GO Zone, the maximum deduction is higher than the deduction for most section 179 property.
Special depreciation allowance for certain property. You may be able to take an additional first year special depreciation allowance for certain qualified property (defined below). The allowance is an additional deduction of 50% of the property’s depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction).
Property that qualifies for this special depreciation allowance include the following.
Tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less
Water utitiliy property
Off-the-shelf computer software
Qualified leasehold improvement property
Examples of Qualified property are the following and must also meet all of the following tests.
Dump trucks, garbage trucks, water trucks, boom trucks, vacuum trucks, semi trucks, excavators, backhoes, forestry equipment, farm equipment, office equipment, machinery and equipment, production equipment, computers etc
You must have acquired qualified property by purchase after December 31, 2007, and before January 1, 2009. If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify. Additionally, the
Qualified property must be placed in service after December 31, 2007, and before January 1, 2009 (before January 1, 2010, for certain transportation property and certain property with a long production period).
The original use of the property must begin with you after December 31, 2007.
In a nutshell here is an example to illustrate the information above. Lets assume the following facts. You are a corporation, sole proprietorship etc and your net profit is $600,000 from January 1, thru October 31, 2008, November and December will be a breakeven therefore, we are at the $600,000 profit for the year based upon our estimate. We have some new signed contracts for the end of 2008 or beginning of 2009 and we need to buy some major equipment in the last month of the year and take delivery before the end of the year. We can get this equipment financed and the monies required down are minimal, maybe $10,000, and the total purchase price is $400,000…..If we execute this contract before the end of the year and take delivery, we are entitled to a $325,000 deprecation expense deduction for 2008. The way I came up with is deduction is by studying the information above. The first $250,000 of qualified acquisitions are dollar for dollar and the balance is $75,000 ($150,000 x 50% = $75,000) . The $150,000 is the remaining basis after deducting the special $250,000 from the original acquisition cost of $400,000. It is important to understand that the cash outlay of $10,000 has nothing to do with the depreciation deduction for 2008.
Obvious from this example, this could be a big bonanza to reduce taxes in 2008 without the major outlay of upfront money. It is important to obtain current interim 2008 financial statements from your CPA, bookkeeper, or in house books now to study your tax situation for 2008. This example above can be scaled back or up to a smaller or larger version and can have a tremendous impact on your company’s 2008 tax situation. These depreciation rules only apply to a profitable company and shouldn’t be considered for additional operating losses. Additionally, it is recommended that you consult with a qualified tax person because this tax law change is new and is higher upgraded from the allowable deductions for 2007.. For companies looking to acquire qualified assets for 2008 with substantial profit, there are limitations and phase out rules for acquistions over $800,000. Tax planning is important at this time of year whether you are Profitable or not and consulting with a qualified tax person is as equally as important . The dollars invested in this area, if done properly, will reward your company handsomely.
Sell and Rent Back