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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
• 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
INITIATIVES
• 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
Missouri Building
Entrepreneurial Capacity
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
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
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
Promoting Employment Across
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
Promoting Employment Across
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
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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.)
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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
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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
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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
Peter.Noonan@CommerceBank.com
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
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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
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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
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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
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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
• Record level of deposits to invest - Commercial Loans are best alternative for return
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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
• Record level of deposits to invest - Commercial Loans are best alternative for return
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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
• Record level of deposits to invest - Commercial Loans are best alternative for return
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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
• Record level of deposits to invest - Commercial Loans are best alternative for return
• Historically low loan losses on CRE lending
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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
• Record level of deposits to invest - Commercial Loans are best alternative for return
• 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
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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
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
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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
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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
3.8% Net Investment Income
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
3.8% Net Investment Income
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
Individual Provisions
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
Individual Provisions
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.
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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
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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
97
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
100
$100,000 Allocation to Personal Property
1st Year
Depreciation Expense:
Personal Property $ 14,290
Real Property (2,560)
Additional Depreciation $ 11,730
101
Ranges for Cost Segregation
Office Buildings 10-20
Apartments 15-25
Hotels/Motels 20-30
Retail 20-30
Warehouses 5-10
102
103
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
104
Like-Kind Exchanges:Factors to Consider
Tax Basis of Property
Fair Market Value
Status of Passive Losses
Need for Liquidity
105
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
108
109
Applies to all taxpayers that acquire, produce, or improve tangible property.
Review current and prior year capital expenditure
and repairs and maintenance
Adopt capitalization policies
Report compliance with regulations with 2014 tax
return
110
WHAT ABOUT THE FUTURE?
111
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
112
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
113
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
114
Number of Returns Filed
115
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?
116
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
117
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
118
C Corp Returns
119
Nontaxable Returns
• Partnership Returns – 0.4%
• S Corp Returns – 0.4%
120
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%
121
Questions
122
REAL ESTATE: IS ANOTHER BUBBLE ON THE HORIZON?
MODERATOR: JOHN PETERSEN
PANEL: MICHAEL STAENBERG, DAVID HARRISON & OWEN BUCKLEY
THANK YOU