Weaver: Beyond the Numbers

Politics and capital gains—how are these related and what do changes in both sectors mean for the real estate industry? Rob Nowak, Partner in Tax Services at Weaver, and Howard Altshuler, Partner-in-Charge of Real Estate Services at Weaver, dove into this topic on this episode of Weaver: Beyond The Numbers Podcast.

Recently, Virginia and New Jersey Governor elections took place, and these elections will undoubtedly shape future Congressional decisions and neighboring state Senators’ opinions on tax issues.

“What we have seen are numerous proposals that have gone through the budget reconciliation process, still through house ways and means, but through budget reconciliation as opposed to the formal budget legislative process that have watered down what initially proposed tax increases were,” stated Nowak.

Originally, capital gain rates for high earners in top brackets were set to mirror ordinary tax brackets and increase from 20 to 39 percent or more. After continued reconsiderations, any capital gain tax increase is now off the table. The proposal is to surtax the top earners in the form of a millionaire surtax and to impose a minimal tax on the wealthiest U.S. corporations in the form of a book tax. “The landscape has changed dramatically just through compromise prior to recent electoral activity,” said Nowak.

Ultimately, there will be an expense deduction change, but mostly clients will have an unchanged landscape of tax legislation and rates.

When should companies plan for changes? Nowak and Altshuler said the last 30 days of year are important, and because of the primaries in March of 2022, nobody wants to dive into tax raises during this time. If no changes occur by the end of the year, there will unlikely be changes until 2023 and 2024.

More information on the tax and real estate landscapes can be found through Weaver’s LinkedIn account or through podcasts on Weaver.com, Spotify, and iTunes.

In 2006 the major card brands formed the PCI Security Standards Council (SSC) with the goal of managing the evolution of the Data Security Standard (DSS). Today that has expanded to several other standards and compliance programs. As part of the DSS compliance program the PCI SSC certifies Qualified Security Assessor (QSA) companies to perform independent audits of merchants and service providers related to the PCI DSS.

So, as a go-to firm for PCI DSS compliance, how does Weaver help clients understand what they need to know?

On this episode of Weaver: Beyond The Numbers, host Tyler Kern talked with Trip Hillman, Director of Cybersecurity Services at Weaver, and Kyle Morris, Senior Manager in IT Advisory Services at Weaver. The trio dug into insights from Weaver’s cyber and QSA team and explored how Weaver advises clients on how to handle PCI DSS assessments and compliance.

PCI DSS applies to organizations that store, process, transmit or could affect the security of cardholder data. Kyle and Trip look at PCI DSS as an opportunity for these companies to use compliance as a competitive advantage.

Kyle is a QSA and explained that the Council establishes PCI DSS criteria and dictates what a QSA does for testing. Then organizations determine how they meet the criteria. There are over 250 requirements with PCI DSS, so depending on a company’s needs and capabilities, the organization can conduct an annual self-assessment or bring in an independent QSA to do a full-blown audit report on compliance.

Kyle and Trip discuss some of the main challenges that companies face with PCI DSS, including scoping, maintaining compliance and identifying the appropriate internal champions. They also share tips on how to prepare for compliance and define common acronyms: SAQ, ROC and AOC.

Tune in to hear why the Weaver team enjoys helping clients fit their unique environment into the complex PCI DSS framework.

“We help people with self-assessment questionnaires or SAQs and everything from full-on ROCs for Fortune 50 Cloud Providers to small merchants to SaaS solutions,” Kyle said.

Not too long ago, accounting standards established by the American Institute of Certified Public Accountants required real estate companies to navigate various requirements for purchase and sales agreements that often resulted in straight forward AS-IS, WHERE-IS terms. But that changed in May 2014, when the FASB issued new guidelines designed to make revenue recognition standards more consistent across industries. Known as “Topic 606,” the new guidance required all companies to disclose additional revenue information in their financial statements.

In this edition of Weaver: Beyond the Numbers, Rob Nowak and Howard Altshuler, spoke about how different the FAS 66 was prior to the new guidance saying that, “FAS 66 had prescriptive requirements that would enable a company to recognize revenue on a real estate sale. Primarily, they had to transfer title, that’s a given. You had to have a really strong down payment, or all cash. You had to limit the amount of future participation with the project once it was sold.”

Once FASB released the new guidance, the rules all changed drastically, and more freedoms were enabled. The new rules set in place allowed companies to structure sales agreements in more creative ways.

According to Altshuler, “When 606 came out, it went from that rules-based approach to more of a concepts-based approach. And some of those concepts were a little bit different. What it does is put things into the context of a performance obligation.”

To hear more of Weaver’s discussion about Topic 606 and its implications, as well as other news about the real estate industry, check out this podcast and others at weaver.com.

COVID-19 rocked the world in most industries, but particularly for biopharma and pharmaceuticals, which were at the forefront. Tyler Ridley, Senior Manager of Valuation Services at Weaver, joined this episode of Weaver: Beyond The Numbers Podcast with Weaver hosts Howard Altshuler, Partner-In-Charge of Real Estate Services, and Rob Nowak, Tax Partner with Weaver, to discuss the rebound and current financial state of the biopharma and med tech industries.

Since the pandemic, the spike in healthcare initial public offerings (IPOs) and performance solidified the IPO pathway and exit strategy for life science investors. “I think it’s a shift in the narrative in biopharma and medical technology from profit-driven industries characterized by nefarious price gouging executives to more strategic industries that really came to the aid of the government and society more broadly in a time of crisis,” Ridley added.

While there were deal drop-offs in 2020 because of factors like the lack of elective surgeries, there was an increase in 2021 deals for digital therapeutics and delivery of care models. MedTech is just one example of this. “MedTech’s deal value has also exceeded 2020 totals so far and is on pace to be the highest value since 2017 despite a decline in total deal volume which indicates that the value per deal on average is increasing,” stated Ridley.

The M&A market has been muted this year, which is related to concerns with regulatory action to curb pricing power and lower drug prices. Risk tolerance to acquire other companies is not as favorable as it is to license their technology.

As for M&A activity for the rest of 2021, valuations are high, making it difficult for executives to gain acquisitions. The turbulent regulation environment combined with the lack of an FDA head is also hard to cope with. Additionally, the current supply chain issue may result in vertical acquisitions boosting M&A activity.

For more podcasts, whitepapers, and thought leadership on this topic, visit weaver.com.

A lot is going on in the tax world that could have implications for companies and individuals. While nothing is official, there are many proposed changes to the tax code in the Build Back Better Act. In this episode of Weaver Beyond the Numbers Real Estate Edition, Weaver hosts Rob Nowak, Partner in Tax Services, and Howard Altshuler, Partner-in-Charge of Real Estate Services, break down what those proposed changes are.

“There are a number of proposed provisions that could impact tax rates,” Nowak explained.

First, there’s the possible graduated rate tax structure for corporations. “It starts at 18 percent for companies with $400,000 in profits and moves up to 26.5 percent for those with over $5 million. It’s still less than tax rates prior to the 2017 cuts,” Nowak said.

On the individual side, there are possible changes, as well. “The top marginal income rate would go up to 39.6 percent. The income brackets would change. For capital gains, the tax rate could rise from 20 percent to 25 percent, which is still less than Reagan-era rates of 28.5 percent,” Nowak noted. He continued, “1031 survived and is not limited. 1231 assets, real estate held for trade or business purposes, could see an impact for the real estate industry.”

These provisions are much different from those discussed months ago, and there will likely be more compromise for the bill to pass.

Altshuler then asked Nowak to “pull out his crystal ball on the likelihood of passage.” Nowak answered, “It comes down to a few key decision-makers. Most consider Senator Manchin a tie-breaking vote. If there’s a fifty-fifty split in the Senate, the Vice President casts the deciding vote. But that only happens if Manchin votes for it. If you want to read the tea leaves, follow Manchin.”

The world of real estate had another unprecedented year in 2021. However, big changes didn’t materialize due to the Build Back Better Act not passing. In this Real Estate Edition of Weaver Beyond the Numbers, hosts Rob Nowak and Howard Altshuler discussed the Build Back Better fallout and predictions for the industry in 2022.

“The legislation was on the minds of our clients and the industry, and we talked about how the most powerful person would be Joe Manchin, who announced he wouldn’t support it. So, it’s off the table for now. The House will have to reinitiate,” Nowak explained.

Altshuler added, “In the long term, nothing is likely to happen with decisions pushed toward mid-term elections. I don’t think we see any traction on tax changes.”

So, what can the real estate world expect in 2022? Howard pointed out two trends that will likely impact more demand for office space and landlords looking to increase leases. “The demand for office space will manifest itself in 2022 with a growing economy. Not so much in construction but a rise in occupancy.”

Landlords with Class A or AA properties could feel the squeeze with cap rates rising, Altshuler advised. “They’ll need to increase rental rates to make up for this and maintain their yield.”

Another area of real estate expected to be a hot topic is multi-family builds due to a housing deficit and the lack of affordability of single-family.

Nowak also noted that single-family rentals are “vital in the chain of housing.” Altshuler concurred, “It’s always been a big part but fractured, but there likely be more consolidation of the industry with institutions working with direct build communities.”

On this episode of Weaver: Beyond the Numbers, Host Tyler Kern talked with Rob Nowak, Partner in Tax Services at Weaver, about the bonus depreciation of business assets.

“Bonus depreciation is one of the incentives that’s been around in the tax code for about 20 years,” Nowak said. “It’s an enhanced expensing election that allows taxpayers to immediately write off the cost basis of qualifying assets placed in service during a year.”

So, what are qualifying assets? It’s a tangible property with MACRS class life of 20 years or less. It also includes some other property that is specialized to an industry, like particular water treatment property, software that is amortized over three years and certain types of plants.

“Both new and used property now qualify for bonus depreciation, which is a little bit of a departure from some prior law,” Nowak said. Under the 2017 Tax Cuts and Job Act, the law was changed to allow new assets but also used property. However, those would not qualify if a taxpayer previously used the property or a predecessor entity or related entity.

“There’s also a specific classification of property referred to as qualified improvement property,” Nowak said. “That’s certain improvements to commercial real estate.”

Listen to the full episode to hear all of Nowak’s insights on the bonus depreciation incentives.

Subscribe and listen to future episodes of Weaver: Beyond the Numbers on Apple Podcasts or Spotify.

Weaver’s professionals are known for helping clients address problems, achieve compliance and prevent fraud or loss. Visit weaver.com for more thought leadership.

With tax season just around the corner, host Tyler Kern discussed the latest updates around charitable contributions with Justin Reeves, CPA, Tax Partner at Weaver.

For those who itemize their deductions, the limit of cash contributions in 2021 has increased from 60% to now a staggering 100% of adjusted gross income.

Reeves clarified the difference in cash and non-cash contributions, “The numbers are still the same for non-cash donations and cash donations to private foundations — those remain at the existing limits — but it’s a real great opportunity for taxpayers to give up to 100%... it’s almost unheard of.”

Reeves also commented on how taxpayers not itemizing can still receive the same benefit as last year — single-filers are able to give up to $300 (married and filing jointly can give up to $600) to deduct against their income.

To really kick it up a notch, Reeves explained some additional techniques to utilize:

Taxpayers can donate their appreciated property to a charity and deduct the fair market value to avoid capital gains tax.

As one of the most popular techniques, taxpayers can donate cash or property to a donor-advised fund. This allows the donor to receive a donation deduction in one year, but he/she pays that amount to the charity over a period of time.

For a more advanced technique gaining popularity, charitable lead trusts enable taxpayers to receive a charitable deduction while maintaining the ability to transfer tax-free assets to their heirs.

As his final words of advice, Reeves encourages contacting a CPA at Weaver before making your gift to ensure you receive the best benefit and fulfill any special requirements. Find more financial education information at weaver.com.

Listen to the full episode to hear all of Reeves’ insights on charitable giving strategies.

Subscribe and listen to future episodes of Weaver: Beyond the Numbers on Apple Podcasts or Spotify.

Weaver’s professionals are known for helping clients address problems, achieve compliance, and prevent fraud or loss. Contact us. We're here to help.

On this episode of Weaver: Beyond the Numbers, Host Tyler Kern talked with Rob Nowak, Partner in Tax Services at Weaver, about the bonus depreciation of business assets.

“Bonus depreciation is one of the incentives that’s been around in the tax code for about 20 years,” Nowak said. “It’s an enhanced expensing election that allows taxpayers to immediately write off the cost basis of qualifying assets placed in service during a year.”

So, what are qualifying assets? It’s a tangible property with MACRS class life of 20 years or less. It also includes some other property that is specialized to an industry, like particular water treatment property, software that is amortized over three years and certain types of plants.

“Both new and used property now qualify for bonus depreciation, which is a little bit of a departure from some prior law,” Nowak said. Under the 2017 Tax Cuts and Job Act, the law was changed to allow new assets but also used property. However, those would not qualify if a taxpayer previously used the property or a predecessor entity or related entity.

“There’s also a specific classification of property referred to as qualified improvement property,” Nowak said. “That’s certain improvements to commercial real estate.”

Listen to the full episode to hear all of Nowak’s insights on the bonus depreciation incentives.

Subscribe and listen to future episodes of Weaver: Beyond the Numbers on Apple Podcasts or Spotify.

On this episode of Weaver: Beyond the Numbers, host Tyler Kern discussed the proposed implementation of a Global Minimum Tax with Vince Houk, CPA, Partner-in-Charge, International Tax Services at Weaver.

Houk explained that many countries within the OECD are considering certain measures, including a global minimum tax rate of 15 percent for larger companies because it would help to “level the playing field.” In addition to the competition between countries for tax revenue, many have seen the digital age hinder their ability to collect taxes. Together, these two issues have led to low tax rates worldwide and many countries are eager for changes.

The Organization for Economic Cooperation and Development (OECD) is looking at three key rules to ensure that countries receive their fair share of taxes:

1. Income inclusion rule;

2. Undertaxed payments rule; and

3. Subject to tax rule

The income inclusion rule and the undertaxed payments rule will effectively provide for a minimum rate of tax for multinational businesses, whereas the subject to tax rule will help ensure that a country’s tax base is not eroded through certain deductible payments (interest, royalties, etc.) where the recipient country subjects the payment to a low rate of tax.

While the income inclusion and undertaxed payments rule would affect multinational businesses with global revenue of more than 750 million euros, it is not clear whether the subject to tax rule will be subject to any threshold.

Under the current framework, a key consideration for multinational businesses will be the effective tax rate which could, for example, impact a country’s ability to boost their economies through tax incentives.

These situations and more are issues the OECD must discuss and iron out before initiating the rule. While it’s unclear why the members of the OECD are considering a 15 percent rate, it’s evident it will apply to many large companies and may have a significant impact on their tax bill.

Weaver’s tax professionals are known for helping multi-national clients achieve global business growth. Listen to the full episode to hear all of Houk’s insights, and visit weaver.com for more thought leadership.

Subscribe and listen to future episodes of Weaver: Beyond the Numbers, The Business of Government on Apple Podcasts or Spotify.