2014 Real Estate & Economic Outlook Seminar

WELCOMENovember 14, 2014

THE EXPERIENCE ECONOMY: NEW WAYS OF GENERATING DEMAND

JOSEPH PINE II

HAVE THE INVESTMENTS IN OUR COMMUNITY PAID OFF FOR OUR LOCAL ECONOMY?

MODERATOR: RUSS WELSH

PANEL: MAYOR MARK HOLLAND, MAYOR CARL GERLACH & MAYOR SLY JAMES

INCENTIVES AVAILABLE FOR COMMERCIAL DEVELOPMENT & HOW TO GET STARTED

MODERATOR: BETTY NELSON-EKEY

PANEL: STEVE KELLY, MIKE DOWNING & PETER NOONAN

Doing Business in Missouri

http://missouriwine.net/wp-content/uploads/2009/11/missouri-winery2.jpg


• MO: One of only 4 states.

Missouri Tech Job Growth: Dice.com

• Top 10 Highest

rate of

Technology Job

Growth in US - 3

Years in a Row

Performance – Missouri – FY-14

• All-Time Record Results.

–28,400 new jobs

–$6.4 billion capital investment

Assisted Companies

https://www.flickr.com/photos/98168814@N06/sets/72157649038136531/

https://www.flickr.com/photos/98168814@N06/sets/72157649038136531/

INITIATIVES



http://business.mo.gov

http://business.mo.gov/

• Uses ACT’s “National Career Readiness Certificate”

• Benefit to Communities:

• Promotes workforce availability and skills.

• Benefit to Companies:

• Reduces hiring risk.

Innovation Campuses

• Partnership between:– Tech companies (apprenticeships)

– Universities and colleges (AP courses and post HS)

– High Schools

• Accelerates 2/4 yr degrees.

• Provides trained/educated tech workers.

• NEW: Contribution 50% tax credit

http://www.ded.mo.gov/exports/getting-started-export-missouri-goods

http://www.ded.mo.gov/exports/getting-started-export-missouri-goods

http://www.ded.mo.gov/exports/export-missouri-get-your-goods-on-the-map

http://www.ded.mo.gov/exports/export-missouri-get-your-goods-on-the-map

http://www.ded.mo.gov/exports/i-want-missouri-goods

http://www.ded.mo.gov/exports/i-want-missouri-goods

Missouri Building

Entrepreneurial Capacity

http://www.missouritechnology.com/

http://www.missouritechnology.com/

INCENTIVES



Incentive Resources

• Resources and Assistance

• State of Missouri

• Cities

• MO E.D. Financing Assn.

www.ded.mo.gov

Local ED Agency Website

www.mosourcelink.

com

www.medfa.com

http://www.ded.mo.gov/

http://www.mosourcelink.com/home

http://www.mosourcelink.com/home

http://www.mosourcelink.com/

http://medfa.com/events

http://medfa.com/events

http://www.medfa.com/

Program Variables

• Type of company/project:– “Primary”

– Redevelopment

– New Development

– Residential Development

– Public/Non-profit/Institutional

• Amount/type of new tax revenue generated from project

• Development needs/problems

State Incentives

• Job creation incentives– Missouri Works

• Worker training– Missouri Works

• Development incentives– Historic TC, Brownfield TC– Low Income Housing TC– Downtown Preservation– Neighborhood Preservation TC– MDFB contribution TC

• Sales tax exemptions

Local Incentives

• Tax abatement or redirect:– Tax Increment Financing/ST Rebate

– Property Tax Abatement• 353, Chap. 100, EZ, LCRA, others

– Sales Tax Exemption (Chap. 100)

• New tax/assessment for development:– Community Improvement Districts

– Neighborhood Improvement Districts

– Transportation Development Districts

• Loans

http://www.ci.liberty.mo.us/

http://www.ci.liberty.mo.us/

http://www.riversidemo.com/

http://www.riversidemo.com/

Federal Incentives

• Economic Development Administration

• Dept. of Housing and Urban Dev.

• New Markets Tax Credits

• Small Business Administration

WWW.DED.MO.GOV



Kansas Business Incentive Overview

Incentives

• Promoting Employment Across Kansas

• High Performance Incentive Program

• Kansas Industrial Training/Retraining

• Job Creation Fund

• STAR Bonds

• Community Development Block Grant

Promoting Employment Across

Kansas (PEAK)

• Purpose: Encourage job growth & retention using

employee withholding taxes retained by employer

• Eligibility Criteria: 10 jobs within 2 years in Douglas,

Johnson, Leavenworth, Sedgwick, Shawnee & Wyandotte

– 5 jobs within 2 years in all other counties

– Median wage of new jobs being created must meet or

exceed county median wage

• Alternative wage options exist


Kansas (PEAK)

• Eligibility Criteria:

– Ineligible: gambling, religious organization, retail

trade, educational services, public administration,

utilities, or food services and drinking

establishments

– Shall not be delinquent in tax payment or in

federal bankruptcy proceedings

– Must make available adequate healthcare and pay

50% of employee premium per FTE


Kansas (PEAK)

• Benefit: retain 95% of state payroll withholding on

PEAK jobs up to 10 years – discretionary

– Less than 100 jobs within 2 years, maximum

benefit of 7 years

– 100+ jobs within 2 years, maximum benefit of 10

years

– Alternate qualification, maximum benefit reduced

High Performance Incentive

Program (HPIP)

• Purpose: encourage capital investment, higher

paying jobs and a skilled work force

• Eligibility Criteria: Must pay above average

industry (NAICS) wage

– Invest amount equal to 2% of payroll in employee

training or participate in state training program

– Cannot be agriculture, mining, construction or

retail

High Performance Incentive

Program (HPIP)

• Benefit:

– 10% tax credit on capital investment over $1MM in

Douglas, Johnson, Sedgwick, Shawnee, and

Wyandotte counties, over $50K investment in all

other counties

– Project exemption from sales tax

– Up to $50K workforce training tax credit

Kansas Industrial Training (KIT)

• Supports training needs of eligible companies

creating at least one net new job

• Awards typically range up to $400 per trainee

• Jobs pay the county median wage or higher

• Reimburses instructor salaries, curriculum planning

and development, materials, supplies, textbooks,

manuals and minor training equipment

Kansas Industrial Retraining

(KIR)• Supports re-training needs of eligible companies that

are restructuring or retraining at least one employee

as a result of: incorporating new technology,

diversifying production or developing and

implementing new product

• Awards typically range up to $400 per trainee and

require a dollar for dollar match by the company

• Retrained positions pay the county median wage or

higher

• Reimburses same type of expenses as KIT

Job Creation Fund (JCF)

• Purpose: provide discretionary funding (cash) that

can be used strategically to meet specific project

needs and fill funding gaps not met by other sources

– Closing fund

Job Creation Fund (JCF)

• Eligibility Criteria: – Identified/demonstrated need

– Final resource/deal closer

• Benefit: – Provides cash, typically on milestone schedule to

offset early project costs

– Performance-based, money not received until performance met, and/or

– Payback required if performance criteria not met

Sales Tax Accelerated Revenue

(STAR) Bonds

• Purpose: encourage development of attractions and

destination retail to attract outside funding and keep

Kansas dollars in Kansas

• Eligibility Criteria:

– Locals request area/district be designated as an eligible

project area by Commerce

– Identified project must be approved locally and by

Commerce

– Must meet project size/revenue generation criteria

– Must meet out-of-state and out-of-region visitorship

requirements

– Demonstrate financial and market feasibility

Sales Tax Accelerated Revenue

(STAR) Bonds

• Benefit:

– Both state and local sales tax increment dedicated

to fund eligible project costs

– Commitment of transient guest tax and other

revenues may also be necessary

Community Development

Block Grant (CDBG)

• Purpose--federal funds made available for

community improvement purposes.

Commerce administers these funds for non-

entitlement communities.

• Eligibility Criteria-

• -- Project benefits low-to-moderate income

• -- Project removes or prevents slum or blight

conditions

• -- Project eliminates an urgent need created by a

disaster when local funds are unavailable

Community Development Block

Grant (CDBG)

Categories of Funding:--Annual Competitive Round

Water and Sewer, Community Facilities, Housing Rehabilitation

--Economic Development

Grants to cities to support private businesses creating jobs

Eligible activities include: infrastructure, land acquisition, fixed asset/working capital financing

Financing structures and repayment requirements vary

Community Development Block

Grant (CDBG)

Categories of Funding:--Urgent Need

--Addresses threats to health/safety from sudden/severe emergencies

--Help meet community needs created by the emergency

--KAN-STEP-Kansas Small Towns Environment Program

--Self-help program for water, sewer and public building projects

--Matches CDBG resources with local volunteer labor (sweat equity)

Other Benefits

• Personal Property Tax Exemption

• No state income tax on most LLCs,

LLPs, Subchapter-S and Sole

Proprietorships

• Local Property Tax Abatements

Thank You

(785) 296-5298

KansasCommerce.com

Real Estate Economic Outlook Focus on Tax Credits & Incentives

November 14, 2014

Peter Noonan816.234.2361 | 314. 746.3223

Before: Crown Candy

neighborhood,

RHCDA, St.. Louis,

MO

Click to edit Master title style

Tax Credits and Incentives are playing an increasing role in real estate

development

• State Historic Tax Credits (KC & MO) [25% or 30% of QRE, all property types, fully transferable]

• Federal Historic Tax Credits [20% of QRE, CML property only, recapture, no transfer]

• Brownfield Tax Credits (MO) [100% of cleanup expense, must create at least 10

new/25 relocated jobs]

• Infrastructure Development Tax Credits (MO) [Now subject to increased caps]

• Affordable Housing Tax Credits (Federal, MO) [Rental residential, workers with a % of median income]

• New Markets Tax Credits (Federal) [CML property, lower census tract, up to 39% federal credit]

• Local programs (TIF, CID, Abatement, etc.)


General Description of a State Tax Credit

• Tax Credits provide a dollar for dollar reduction in the State tax obligation of an individual or corporate taxpayer.

• It is different than a tax deduction, and represents an actual reduction in taxes due to the State

• Both Missouri and Kansas historic tax credits are freely transferable


Kansas Historic Rehabilitation Tax Credit Program

• Arises from the rehabilitation of a building listed on either the Kansas State or National Register of Historic Places, or a contributing building within a State or National district

• Buildings may be income producing of non income producing

• Personal residences may be included

• Project expenses must exceed $5,000

• No program cap, no project cap

• All work must meet the Secretary of the Interior’s Standards for Rehabilitation

• Tax credit is equal to 25% of Qualified Rehabilitation Expense (QRE), increasing to 30% of QRE for 501© 3 corporations

Click to edit Master title styleMissouri Historic Rehabilitation Tax Credit Program

• Arises from the rehabilitation of a building either i) listed individually on the National Register of Historic Places, ii) certified by the MO Department of Natural Resources as contributing to the historic significance of a certified historic district listed on the National Register, or iii) contributing to a local historic district that has been certified by the US Department of the Interior

• Building may be income producing or non income producing

• Personal residences may be included, capped at $250,000 in credits per resident

• QRE must exceed at least 50% of original purchase price of subject property

• Annual allocation of $140MM in credits, no cap on deal size

• All Small deal exemption” Projects with QRE of $1.1 million or less do not count towards the program cap

• All work must meet the Secretary of the Interior’s Standards for Rehabilitation

• Tax credit is equal to 25% of Qualified Rehabilitation Expense (QRE)

• Not for profit entities do not qualify

Click to edit Master title styleFederal Historic Tax Credit Program

• Only for income producing properties (not for personal residences, condos, townhomes)

• Only available to for profit applicants

• Calculated at 20% of QRE

• Minimum QRE to be at least equal to the tax basis in the property

• Subject to recapture for the 5 years after the property is placed in service (property sale, foreclosure, deed in lieu, casualty)

• All non transferable, often liquidated through partnerships

• Currently difficult to syndicate when below $1 million in credits

• Current trend: Issues in syndication include getting a legal opinion that the project meets the IRS Safe Harbor, that the master lease terms are at market rate, and how the investor will recognize 50d income

Click to edit Master title styleQualified Rehabilitation Expense (QRE)

This generally includes:

• Hard Renovation costs – from exterior inwards

• Construction period soft costs

• Up to 20% developers fee – with agreements and special accounting

This generally excludes:

• Items not permanently attached

• Landscaping

• Parking lots

• Additions

Click to edit Master title styleTo rehabilitate or not to rehabilitate

• Reasons to renovate historic buildings

• Federal and State tax credits

• Quality building when completed

• Greater marketability of completed building

• Preservation of our heritage (neighborhood, City, State)

• Reasons not to rehabilitate

• Renovation costs excessive (wet building, structural)

• Conflicting requirements (accessibility, local codes)

• Your design for the building does not meet standards

• Costs to meet historic standards exceed value of the credits

• Steps to analyze historic property

• Thoroughly examine structure

• Consider hiring a preservation consultant

• Either avoid wet buildings, or use as an opportunity to mitigate

• Beware of emotional attachment to the building

• Always know your market – apartments, offices, retail, hotels

• Select an experienced development team


Process for Rehabilitation

• Determine Historic Status (on register, in district?)

• Plan the project with your architect or historic consultant

• Document the history and evolution of the building

• Evaluate original materials, features, finishes

• Assess physical conditions of historic materials

• Work with your State Historic Preservation Officer (SHPO) on your plan

Click to edit Master title styleDeveloper questions when getting started

• Evaluate local support and localized incentives that may be available

• If not listed – put on register yourself?

• Hire a Preservation Consultant?

• For profit entity vs. not for profit entity?

• Environmental issues, Brownfield credits?

• If residential – rental vs. condo

• If rental residential – market rate vs. affordable

• Conventional financing vs. HUD

• May your incentives all be layered?

Click to edit Master title styleState Tax Credits assist in the financing process • KS & MO State Tax credits are fully transferable, issued upon completion

• These tax credits may be sold to third parties at a discount upon issuance

• Tax Credits may be pre-committed to a buyer early in the process, often to a credits rated entity that then becomes required to make the purchase upon issuance of the credits

• Lenders will often take this into account in the project equity requirement and underwriting

• Lenders, partners and investors (Fed HTC, LIHTC) will then underwrite the tax credit purchaser and may take direct assignment of these proceeds via multi

• Under these agreements, tax credit purchasers may be required to make payment directly to the lender, who applies the funds to the loan per the loan agreement with the developer

• Current Trend: Industry currently vibrant, especially market rate apartments, but struggling with tax structure issues upon gain on sale of the State tax credits

Peter T. Noonan

816.234.2361 | 314. 746.3223

[email protected]

Drury Plaza

Broadview Hotel, Wichita , KS

ARE LENDERS ON BOARD IN HELPING TO STIMULATE THE ECONOMY?

MODERATOR: SCOTT SLABOTSKY

PANEL: KEVIN BARTH, BRIAN LEE & Jim Rine

2014 Kansas City Real

Estate and Economic

Outlook Conference

Kevin Barth

November 14, 2014


55

Trends in Commercial Real Estate Development

• Equity capital for real estate is readily available from both traditional institutional sources as well as private investors

• Loan structures today usually have more equity than in the past, but recourse levels are more subject to negotiation and tied to property performance metrics

• More real estate development projects are receiving some form of incentive such as TIF, TDD, CID or NID

• Questions abound as to what impact trends such as renter by choice, the impact of the baby boomers retiring and working from remote locations will have on demand for real estate

• More questions about the impact of rising rates on the performance of projects conceived in a historically low rate environment


56

Trends in Commercial Real Estate Development

• Competition for quality loans with capable sponsors has brought spreads on loans down while structuring has remained sound

• Multifamily projects, primarily Class A have been the most active. Demographic shifts driving this have been millennials delaying marriage and a growing renter by choice cohort

• Large bulk industrial warehouses have also been popular driven by needs for higher ceiling heights to allow new racking systems and desire for improved locational efficiencies

• CMBS issuance grew from $48B in 2012 to $86B in 2013 but still well off 2007 level of $229B

• Speculative office development is slowly making a comeback in markets with strong job growth potential such as Dallas, Houston and Denver


57

Why Is Commerce Actively Seeking New Commercial Real Estate Lending Opportunities?• CRE continues to be a major portion of total commercial loan portfolio –

approximately half of $6Billion total


58



• Record level of deposits to invest - Commercial Loans are best alternative for return


59





60





61




• Historically low loan losses on CRE lending


62




• Historically low loan losses on CRE lending

• Credit quality and problem loans back to pre-recession levels – even for troubled institutions

Source: Federal Reserve: October 2014 Senior Loan Officer Opinion

Survey on Bank Lending Practices


63

Tips for Being More Efficient in the Loan Process

• Deal with an experienced banker who understands your business and has successfully operated

through many economic cycles

• Understand the bank’s loan approval process and provide a detailed picture of the team – developer,

contractor, lawyers, tenants, leasing and management

• Submit a detailed line by line budget that shows both the timing and sources of equity injection

• Have current financials on borrower, guarantor and tenants

• Justify pro forma income and expense projections based on current comparables in market

• Be aware that banking is a regulated industry; issues like FIRREA, KYC and Patriot Act have

implications on every loan

• Include site plan, current photos, renderings, etc. Pictures are worth a thousand words

• Identify any potential environmental issue – minimum requirement of a Phase 1 ESA

• Be realistic in terms of time frames. In most cases the longest lead time will be the appraisal process

so get it ordered in a FIRREA compliant manor ASAP

Quality endures.

Third Quarter 2014

UMB Financial

2014 Kansas City Real Estate

& Economic Outlook Conference

Jim Rine

President – Kansas City Region

Cautionary Notice about Forward-Looking Statements

65

This presentation contains, and our other communications may contain, forward-looking statements

within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be

identified by the fact that they do not relate strictly to historical or current facts. All forward-looking

statements are subject to assumptions, risks, and uncertainties, which may change over time and

many of which are beyond our control. You should not rely on any forward-looking statement as a

prediction or guarantee about the future. Our actual future objectives, strategies, plans, prospects,

performance, condition, or results may differ materially from those set forth in any forward-looking

statement. Some of the factors that may cause actual results or other future events, circumstances, or

aspirations to differ from those in forward-looking statements are described in our Annual Report on

Form 10-K for the year ended December 31, 2013, our subsequent Quarterly Reports on Form 10-Q

or Current Reports on Form 8-K, or other applicable documents that are filed or furnished with the

Securities and Exchange Commission (SEC). Any forward-looking statement made by us or on our

behalf speaks only as of the date that it was made. We do not undertake to update any forward-

looking statement to reflect the impact of events, circumstances, or results that arise after the date that

the statement was made. You, however, should consult further disclosures (including disclosures of a

forward-looking nature) that we may make in any subsequent Quarterly Report on Form 10-Q, Current

Report on Form 8-K, or other applicable document that is filed or furnished with the SEC.

UMB At A Glance

66

Assets under management

Banking presence

Branches/ATMs

Acquisitions last 10 years

Market cap

Dividend payout ratio*

$42.1B

8 states

107/306

23

>$2.48B

32.7%

Total assets $16.3B

Revenue from fee businesses – current quarter 59.1%

*Average over past 4 quarters – diluted EPS

As of September 30, 2014

$4.6$4.8

$5.3

$6.4

$7.0

4.92%

3.50%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

$ B

illio

ns

Average Net Loans Average Loan Yield

Consistent Loan Growth

67

5 Year

CAGR

9.9%

Average Net Loans & Loan Yields

Average Balance, AFS:

$6.7 billion

Average Yield:

1.86%

Investment MixSecurities Available for Sale,

At September 30, 2014

Agencies

High Quality Investment Portfolio

68

CDs & Corporates

Municipals

Mortgage-Backed Securities

Treasuries

AFS Portfolio Statistics

46.8%

29.1%

14.6%

2.0%

7.5%

Roll off Purchased

($ millions) Yield ($ millions) Yield

4Q'13 $308 2.04% $355 0.64%

1Q'14 $528 1.53% $618 1.26%

2Q'14 $275 2.23% $560 1.35%

3Q'14 $244 1.98% $311 1.45%

Scheduled Cash Flow

4Q'14 $272 2.08%

Next 12 months $1,071 1.98%

53.8%

25.4%

4.5%

6.1%

1.3%

8.9% Commercial & Industrial

Commercial Real Estate

Consumer Real Estate

Credit Card

Consumer

Home Equity

Commercial Real Estate

Commercial & Industrial Consumer Real Estate

Credit Card Home Equity

Consumer

44.1%

20.0%

4.6%

5.2%

21.0%

5.1%

Changing Loan Mix

Quality Loan Composition

69

3Q 2014Year-End 2006

$8.3

$9.5$10.4

$11.8$12.5

32.7%37.1%

40.4%

39.6%40.5%

3Q'10 3Q'11 3Q'12 3Q'13 3Q'14

Interest Bearing Non-Interest Bearing

$4.6 $4.8$5.3

$6.4$7.0

3Q'10 3Q'11 3Q'12 3Q'13 3Q'14

UMB Bank

70

Average Net Loans$ in billions

5 yr

CAGR

9.9%

5 yr

CAGR

10.9%

Average Deposits$ in billions

$3.57 $3.79 $4.23$5.28 $5.75

3Q'10 3Q'11 3Q'12 3Q'13 3Q'14

Bil

lio

ns

UMB Bank – Commercial Banking Results

71

Loan Balances$ in billions, Average C&I and CRE Loan Balances for Three Months Ended September 30

5 yr

CAGR

11.1%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

UMBF Industry Median

Low-Cost Funding Sources

72

At September 30, 2014

42.9%

vs.

Industry Median* of

19.4%non-interest bearing deposits

>2Xvs. Industry

Non-Interest Bearing

Deposits as % of Total Deposits

*Industry Median as of 2Q14; Source: SNL Financial

Additional Thoughts

Biggest changes at UMB regarding commercial real estate lending

Types of loans we are seeing

TAX STRATEGIES AVAILABLE FOR THE FINAL 45 DAYS OF 2014

PAT O’BRYAN & SETH LEIBSON

Tax Strategies

for the

Final 47 Days of 2014

75

http://derhonigmannsagt.files.wordpress.com/2011/04/man-pushing-dollar-sign-1.jpg

http://derhonigmannsagt.files.wordpress.com/2011/04/man-pushing-dollar-sign-1.jpg

NO NEWS IS GOOD NEWS?

76

Individual Provisions

Maximum Rates2013- 2014

Ordinary Income 39.6% *

Qualified Dividends/ Long Term 20% * **

Capital Gain

* Applicable when taxable income exceeds $406,750 (single) and

$457,600 (married filing jointly)

** Plus an additional 3.8% Medicare surtax when taxable income

exceeds $200,000 (single) and $250,000 (married)

77

Maximum Tax Rate

Regular 39.6%

AMT 28%

78

Timing of Income and Expenses is Key

Smart timing can reduce your tax liability

Poor timing can unnecessarily increase it

79

AMT Triggers

State and local income tax deductions

Real estate and personal property tax deductions

Interest on home equity loan or line of credit not used

to buy, build or improve your principal residence

Miscellaneous itemized deductions subject to

2% of AGI floor

Accelerated depreciation adjustments and related gain

or loss differences when assets are sold

80

What to Consider Doing

If subject to AMT this year

Accelerate ordinary income and short-term capital gains into 2014

Defer expenses you can’t deduct for AMT purposes until 2015

If subject to AMT next year

Defer ordinary income until 2015

Prepay expenses you can’t deduct for AMT purposes in 2014

If subject to AMT every year

81

3.8% Net Investment Income

Overview

Beginning last year, a new 3.8% Medicare “surtax” applies to those

who have investment income and whose income exceeds a certain

“threshold amount”.

$200,000 (single) / $250,000 (married)

Applies to the lesser of Net Investment Income or Modified AGI

82


Net Investment Income Defined:

83

Includes

• Interest

• Dividends

• Annuity Distributions

• Rents

• Royalties

• Income derived from passive activity

• Net capital gain derived from the disposition of property


Net Investment Income Defined:

84

Does NOT Include:

• Salary, wages, or bonuses

• Distributions from IRAs or qualified plans

• Any income taken into account for self-employment tax purposes

• Gain on the sale of an active interest in a partnership or S corporation

• Nonpassive trade and business income

Note on Real Estate Professionals

3.8 % Net Investment Income

Reduced by

• Investment interest expense

• State income taxes

• Miscellaneous investment expenses

85

0.9% Payroll Surtax on Earned Income

Beginning last year, wage earners are subject to an additional 0.9% Medicare

tax on wages and self-employment income exceeding $200,000 per year

($250,000 for joint filers).

Employers are obligated to withhold the additional tax beginning in the pay

period when wages exceed $200,000 regardless of an employee’s filing status.

86


Itemized Deductions

3% of AGI Itemized Deduction Phase-outs returned last year (up to

80%)

For single taxpayers, the level is $254,200

For joint returns, the level is $305,050

This phase-out tends to lessen the ultimate impact of AMT.

Personal Exemption

$3,950 per exemption but are phased out for taxpayers at a rate of 2%

for each $2,500 or fraction of $2,500 by which the taxpayer’s AGI

exceeds the above levels

87


Itemized Deductions

Married Taxpayer:

AGI $ 505,050

Threshold <305,050>

Excess AGI $ 200,000

Phase Out Rate 3%

Itemized Deductions Lost $ 6,000

Personal Exemptions lost 100%

88

Investments

Capital Gains and Losses

Careful handling of capital gains and losses can save taxes

For married taxpayers filing jointly, the long-term capital gains rates are as follows:

Income up to $73,800 0%

Income $73,801-$457,600 15%

Income over $457,600 20%

Also be subject to the 3.8% Net Investment Income Tax if income exceeds

200,000 (single) or 250,000 (married)

89

Investments

Capital Gains Tax and Timing

Consider transferring appreciated assets to adult children in the 15%

ordinary tax bracket to enjoy the 0% capital gains rate

Donate appreciated assets to charity

90

Tax Strategies

For

Real Estate and Business

Transactions

91

Real Estate Activity Losses

Losses are typically passive

Real estate professionals can deduct losses fully if annually

they

Perform more than 50% of personal services in real property trades

or businesses

Meet material participation requirements

Spend more than 750 hours of service in such businesses

Good record keeping

Keep in mind: Each year stands on its own. Plus there are other

nuances to be aware of. If you’re concerned you’ll fail either test,

consider increasing your hours so you’ll meet the test.

92

Passive Losses

Deductible only against income from other passive activities

Carry forward disallowed losses to next year

To avoid passive treatment, participate in a trade or

business more than 500 hours per year

If you don’t pass the test, consider

Increasing your involvement

Disposing of the activity

Investing in an income-producing passive activity

93

Taxation of Governmental Incentive

Use corporate entity to avoid taxation of the

following:

• Tax increment financing (TIF).

• Sales tax and revenue bond.

• Transportation development districts (TDDs).

• Community Improvement Districts (CIDS).

94

Expensing for Business Property

95

Election (Section 179)

Immediately expense of tangible personal property.

Must have active trade or business income.

Deduction phases out when eligible purchases exceed limits.

Sec. 179 Limitations

2013 2014

Deduction Limitation $500,000 $25,000

Asset Limitation $2,000,000 $200,000

96

2013 2014 2015

BONUS DEPRECIATION 50% 0% 0%

LEASEHOLD IMPROVEMENTS 15 YR. 39 YR. 39 YR.

RETAIL IMPROVEMENTS 15 YR. 39 YR. 39 YR.

Bonus Depreciation

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Cost Segregation

Determines whether an item is personal property or a

structural component of the building.

Reduces recovery period for depreciation from 39 years

to 15, 7 or even 5 years.

Automatic accounting method change – catch up

depreciation understatement in one year.

98

Typical misclassified assets:

Cabinets

Decorative fixtures

Partitions or removable walls

Security equipment

Parking lots and landscaping

Cost Segregation

99

Where Does Cost Segregation Apply?

New Construction

New Acquisition

Currently Owned Property

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$100,000 Allocation to Personal Property

1st Year

Depreciation Expense:

Personal Property $ 14,290

Real Property (2,560)

Additional Depreciation $ 11,730

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Ranges for Cost Segregation

Office Buildings 10-20

Apartments 15-25

Hotels/Motels 20-30

Retail 20-30

Warehouses 5-10

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General Rule: Like-Kind Exchanges

Like-kind property

Exchange property designated within 45 days

Property received within lesser of:

180 days, or

Due date of return

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Like-Kind Exchanges:Factors to Consider

Tax Basis of Property

Fair Market Value

Status of Passive Losses

Need for Liquidity

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Tangible Property Regulations

What/Why/When/How it affects you.

106

Extensive Guidance on Capitalization vs. Repair & Maintenance

107

Over 200 pages of guidance & over 170 examples replaces 4 pages of guidance.

Effective tax years beginning on or after 1/1/2014

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109

Applies to all taxpayers that acquire, produce, or improve tangible property.

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://storyality.wordpress.com/faq-frequently-asked-questions/&ei=xu1YVMvHHoXAmwXizYDoBw&bvm=bv.78677474,d.cGE&psig=AFQjCNEnfuiMvwMq2R1lMOTxFIQgTX_PEA&ust=1415200581154703

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://storyality.wordpress.com/faq-frequently-asked-questions/&ei=xu1YVMvHHoXAmwXizYDoBw&bvm=bv.78677474,d.cGE&psig=AFQjCNEnfuiMvwMq2R1lMOTxFIQgTX_PEA&ust=1415200581154703

Review current and prior year capital expenditure

and repairs and maintenance

Adopt capitalization policies

Report compliance with regulations with 2014 tax

return

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WHAT ABOUT THE FUTURE?

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New World

Balance of Power

Senate 54/100 Republican Party

House 244/435 Republican Party

White House Democrat

Veto override votes needed (2/3 of those present, quorum

necessary)

Senate 67

House 290

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LIKELY MUST BE BIPARTISAN INCLUDING PRESIDENT OBAMA INVOLVEMENT ALONG THE WAY.

CORPORATE RATE REDUCTION /REPATRIATION

- STATUTORY RATE FROM 35% TO 25%

- CONSISTENT WITH BAUCUS, CAMP AND JOINT COMMITTEE ON TAXATION PROPOSALS

- PREFERENCES/ DEDUCTIONS AT RISK (ADVERTISING)

INDIVIDUAL

- FEW PROPOSALS IN THIS AREA

- LIKELY LITTLE IF ANY CHANGE DURING NEXT 2 YEARS

- NO RELIEF FOR NET INVESTMENT INCOME TAX (3.8%) OR MEDICARE PAYROLL TAX (.9%)

- CARRIED INTERESTS ARE SAFE

Real Tax Reform

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MEDICARE “SURTAX” (3.8%) ON INVESTMENT INCOME

PAYROLL MEDICARE “SURTAX” (.9%) ON WAGES AND SELF-EMPLOYED INCOME

PHASE OUT OF ITEMIZED DEDUCTION AND PERSONAL EXEMPTIONS

INDIVIDUAL HEALTH INSURANCE MANDATE EXCISE TAX

EMPLOYER TAX ON FAILING TO PROVIDE HEALTH INSURANCE

TAX ON MEDICAL DEVICE MANUFACTURES

TAX ON INDOOR TANNING SERVICE

INCREASE IN EARLY DISTRIBUTION FROM HSA ACCOUNTS (FROM 10%- 20%)

INCREASE IN FEDERAL TOBACCO EXCISE TAX (156%)

12 OTHER SIGNIFICANT TAX HIKES

Obama ERA New or Increased Taxes

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Number of Returns Filed

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C or other Corp 2,248,000

S Corp 4,566,000

Partnership 3,683,000

Individual 145,996,000

Estate and Trust 3,192,000

Tax Exempt 1,463,000

- PAPER 10,036,510 6.2%

-ELECTRONICALLY 151,114,490 93.8%

How Were They Filed?

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Number of Returns Filed

KS MO CA WYC or Other Corp 17,193 33,479 319,631 5,060

S Corp 34,291 66,477 456,439 12,585

Partnership 35,515 67,764 388,946 13,478

Individual 1,326,135 2,726,692 16,934,571 305.473

Estate and Trust 28,170 153,867 330,614 7,160

Tax Exempt 15,101 32,540 159,529 4,181

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1960 $ 92,000,000,000

1970 $ 196,000,000,000

1980 $ 519,000,000,000

1990 $ 1,056,000,000,000

2000 $ 2,097,000,000,000

2010 $ 2,345,000,000,000

2013 $ 2,855,000,000,000

US GOVERNMENT GROSS TAX COLLECTORS

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C Corp Returns

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Nontaxable Returns

• Partnership Returns – 0.4%

• S Corp Returns – 0.4%

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Individual Returns

• Less than $200,000 Total Income

– No Schedule C, E or F – 0.4%

– With Schedule C, E or F – 1.0%

• $200,000 - $1,000,000 of Total Income

– Non-Business Returns – 2.5%

– Business Returns – 3.2%

• Over $1,000,000 of Total Income – 10.8%

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Questions

122

REAL ESTATE: IS ANOTHER BUBBLE ON THE HORIZON?

MODERATOR: JOHN PETERSEN

PANEL: MICHAEL STAENBERG, DAVID HARRISON & OWEN BUCKLEY

THANK YOU

2014 Real Estate & Economic Outlook Seminar

Real Estate

Transcript of 2014 Real Estate & Economic Outlook Seminar