• The new tax bill introduces a graded holding period for QSBS, with gain exclusions based on how long shares are held.

• The fixed gain exclusion under Section 1202 increases from $10 million to $15 million for qualifying shares issued after July 4, 2025.

• The asset cap for calculating the 10X adjusted basis exclusion rises from $50 million to $75 million, expanding potential gain exclusions for shareholders.

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The One Big Beautiful Bill Act, signed into law July 4, 2025, makes three significant changes to Section 1202. These changes affect the five-year holding period required and the amounts of gain exclusion under the law.

Here are answers to frequently asked questions about these changes:

How was the holding period requirement revised?

Under prior law — and for qualified small business stock (QSBS) shares prior to the Act taxpayers must hold QSBS shares for five years from the date of issue for any gain exclusion which is 100%.

For QSBS shares issued after the date of the new law, there is a so-called “graded” holding period. Thus, if you hold shares for three years from the date of issue, the gain exclusion is 50%. If four years from the date of issue, the gain exclusion is 75%. If shares are held for five years, which is consistent with prior law, the gain exclusion is the longstanding 100%.

This change affects both the holding period and the amount of gain excluded depending on the applicable holding period achieved.

Has the gain exclusion increased under the new law?

Yes, Section 1202 gain exclusion is based upon the greater of (a) $10 million (the “fixed” amount) or (b) 10 times adjusted basis in the qualifying QSBS shares (the “10X” amount). The new law makes changes to both elements of this gain exclusion calculation.

What is the change to the $10 million exclusion?

For qualifying shares issued after the enactment date of the new law, the “fixed” gain exclusion amount is now $15 million. Further, this $15 million amount is indexed for inflation for years beginning after 2026.

What is the change to the 10X adjusted basis gain exclusion?

The 10X exclusion provision involves the fair market value of the QSBS corporation’s assets at the time it issues qualifying shares. If the assets at this date are valued at, hypothetically, $27 million, then the 10X adjusted basis element yields an aggregate gain exclusion of $270 million for all shareholders.

Existing law was based on an asset cap of $50 million. The new law increases that cap to $75 million. Thus, hypothetically, if a corporation had an asset valuation upon conversion after the passage of the new law of $69 million, the aggregate gain exclusion for shareholders would be $690 million. This example reflects an increase in total gain exclusion by $190M over the prior maximum exclusion of $500M.

Like the $15 million element of gain exclusion, this asset provision is also indexed for inflation for years after 2026.

What New Section 1202 Changes Mean for You

These increases in gain exclusion expand the number of eligible entities that may consider a 1202 conversion. The increases also offer a significant expansion of the basic gain exclusion and continued adjustment upwards due to inflation indexing.

These are positive changes for development stage enterprises, the capital allocation flowing to them, and the entrepreneurs and investors involved in such businesses.

How MGO Can Help

Understanding the new Section 1202 rules is key to accessing available tax benefits — especially as you plan for growth, fundraising, or a future exit. Our tax professionals can help you assess eligibility under the revised law, develop documentation strategies, and prepare for investor reviews, audits, or transactions. Contact us today to learn how we can support your goals.

The post New Tax Act Changes to Qualified Small Business Stock Under Section 1202 appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Form 706 requirements still apply even for portability-only filings, so executors must submit a “complete and properly prepared” return, including detailed valuations, when necessary, despite the availability of simplified reporting rules.  

• Simplified reporting is limited in scope — the special rule under Reg. §20.2010-2(a)(7)(ii) only applies when property values passing to a spouse or charity are not needed to determine amounts passing to other beneficiaries.  

• Incomplete or improper filings can forfeit portability, as highlighted in Estate of Rowland v. Comm., with failure to meet full reporting standards preventing the surviving spouse from using the deceased spouse’s unused exclusion (DSUE). 

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A decedent’s estate is not required to file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, if the gross estate is below the filing threshold — $13.99 million for 2024 and $15 million for 2025. However, if the decedent is survived by a spouse, the decedent’s estate may want to file a Form 706 to port any remaining exemption the decedent may have had at death to the surviving spouse. There is a common misconception that if a Form 706 is being filed for portability purposes only, the Form 706 filing requirements can be ignored, modified, or not followed completely, particularly if the estate’s executor makes an election to use the special rule introduced in Reg. §20.2010-2(a)(7)(ii), which relaxes the reporting requirements governing valuation of property in an estate.  

Contrary to popular belief, estate tax filing requirements must still be observed: the IRS reminds tax practitioners of those requirements in Estate of Rowland v. Comm., T.C. Memo. 2025-76 (July 15, 2025).  

Case Facts 

Decedent Billy Rowland died on January 24, 2018, two years after his wife Fay, who had died on April 8, 2016. While the value of Fay’s estate was below the 2016 filing threshold ($5.45 million) for Form 706, the executor of Fay’s estate applied for and received an automatic extension to file Fay’s estate tax return; with the extension, the return would have been due on July 8, 2017. Fay’s executor ultimately filed Fay’s Form 706 on December 29, 2017, electing portability pursuant to Rev. Proc. 2017-34. Fay’s gross estate reflected an estimated value of $3 million and payments to 13 named beneficiaries totaling $1,401,000. The deceased spousal unused exclusion (DSUE) amount was calculated as $3,712,562. Billy’s estate, which was a taxable estate, sought to port Fay’s unused exclusion.  

Fay’s estate completed the Form 706 schedules by listing various assets in which Fay had an interest at the time of her death. The listed assets included real property, shares of Rowland Motors, Inc., shares of Rowland Marietta, Inc, a note receivable of Rowland Enterprises, and bank accounts. Using the special rule of Reg. §20.2010-2(a)(7(ii), the return estimated the gross value of the estate, rather than providing any information as to the fair market value of each asset.  

On April 22, 2019, Billy’s estate timely filed its Form 706, reporting a DSUE amount of $3,712,562 that resulted in a $22,445 refund for the estate. Billy’s return was selected for examination. The IRS issued a notice of deficiency that indicated Fay’s return was not timely filed, and therefore, no DSUE amount was available for Billy’s estate. The IRS concluded that Fay’s Form 706 was not eligible to use the simplified reporting structure under Reg. §20.2010-2(a)(7)(ii); hence, Fay’s estate failed to timely submit a “complete and properly prepared estate tax return,” as required by Rev. Proc. 2017-34.  

Statutory Framework 

A DSUE amount is available to a surviving spouse for transfers made on or after the decedent’s date of death, but only if the executor of the decedent’s estate makes the election on a timely filed Form 706. Section 2010(c)(5)(A) provides that a portability election is timely if the Form 706 is filed nine months after the decedent’s date of death, but an executor may apply to request an additional six-month extension for filing.  

For estates that are not required to file a Form 706 because the gross estate value is below the filing threshold, Rev. Proc. 2017-34¹ extends the time to file an estate return to make a portability election, under certain circumstances. The revenue procedure provides that “a complete and properly prepared” Form 706 is considered timely if filed “on or before the later of January 2, 2018, or the second annual anniversary of the decedent’s date of death.” Form 706 is “complete and properly prepared” if it is prepared in compliance with the Form 706 instructions and in satisfaction of Reg. §§ 20.6018-2 through 20.6018-4.  

Form 706 requires the listing and fair market valuation of various property types. However, Reg. §20.2010-2(a)(7)(ii) allows an estate to report good faith estimates of the property’s fair market value, rather than report the fair market value as is traditionally required. The regulation generally applies to assets subject to bequests and transfers that receive the estate tax marital deduction or charitable deduction. The reporting requirements are simplified, but only if the value of that property does not relate to, affect, or is not needed to determine the value of property passing from the decedent to a noncharitable or nonmarital beneficiary. The election is available to estates that file Form 706 for portability purposes only. The regulations also require the reporting of “the description, ownership, and beneficiary of such property.” 

Court’s Analysis 

In Rowland, Fay’s trust agreement provided for specific bequests totaling $950,000 to children, grandchildren, and friends; distributions of certain percentages to the surviving spouse (Billy) and to a charitable family foundation; and the trust residue to fund trusts for grandchildren. Fay’s Form 706 reported an estimated value for the entire estate, grouping the marital and charitable deduction property rather than separately reporting those properties. However, even if Fay’s return had separately identified the marital and charitable deduction property, the court concluded that estimated reporting would not apply, because the value of property passing to the charitable family foundation and to the surviving spouse was needed to determine the value passing to the trusts for the grandchildren. The disposition of Fay’s estate precluded the estimated reporting approach allowed by Reg. §20.2010-2(a)(7)(ii).  

Detailed reporting, including fair market value, for all estate property on Fay’s Form 706 would have been required to represent a “complete and properly prepared” return, the court said. Consequently, Fay’s estate failed to make a timely portability election under Rev. Proc. 2017-34, because Form 706 was an incomplete and improperly prepared return – lacking detailed valuation information as of the date of death. Accordingly, Billy’s estate could not port the DSUE amount to reduce its taxable estate. 

Billy’s estate argued that Fay’s return substantially complied with the requirements to make a valid portability election by filing a Form 706 that reported the “information necessary to determine that no estate tax is due and estate tax exemption remains available.” The court did not opine on whether the doctrine of substantial compliance is ever available for making a valid portability election. However, the court stated that had the doctrine been available, Fay’s estate did not substantially comply by doing “all that was reasonably possible” to comply with Reg. §20.2010-(2)(a)(7)(ii). The court found that Fay’s return concealed, rather than clarified, the information needed to verify the DSUE amount. 

Billy’s estate also argued the doctrine of equitable estoppel; however, the court held that Billy’s estate did not meet the requirements for an equitable estoppel claim. 

Insight 

Generally, simplified reporting will not apply if a decedent’s entire estate is not left outright to the surviving spouse, or in a qualified terminable interest property (QTIP) trust, a charitable trust, or to a qualified charity. Caution is advised if an estate chooses to use the special rule under Reg. 20-2010-2(a)(7)(ii), because if the rule does not apply, the portability election may be lost. Additionally, detailed reporting provides an income tax basis and a presumption of value that simplified reporting does not. If the estate’s value hovers close to the threshold amount for required filing of Form 706, detailed reporting may be the more prudent choice.  

 
Written by Katherine A. Walter. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

How MGO Can Help 

The Rowland case highlights a common but costly mistake: assuming simplified reporting makes Form 706 less critical. In reality, the IRS expects a complete and properly prepared return, even when the estate is under the filing threshold and portability is the only goal. Our Private Client Services team supports fiduciaries and tax leaders in assessing whether a portability election is appropriate, making sure returns meet IRS requirements, and identifying when simplified reporting may not apply. For estates close to the filing threshold (or more likely to face audit), we can help prepare detailed filings that preserve the DSUE and establish a clear income tax basis. And, as always, if questions arise, our team is prepared to respond. Contact us to learn how we can help you avoid common pitfalls and protect future tax planning opportunities. 

The post Portability and Simplified Reporting – A Warning from the Tax Court  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The party responsible for paying the tariff determines if the charge is included in the taxable sales price under state sales and use tax rules. 

• Sales tax treatment of tariffs varies by state, making it essential for businesses to stay updated on local laws to remain compliant and avoid penalties. 

• Businesses can reduce sales tax exposure by strategically structuring transactions to exclude tariff costs when legally allowed by state tax guidance. 

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Tariffs are not new, but dramatic increases in their rates have drawn attention to them.  

To mitigate the effects of those levies, some businesses have chosen to separately state tariff-related surcharges on their invoices, raising questions about whether such separately stated charges are subject to sales tax. 

While the inclusion of tariffs in the sales tax base varies across states, a common consideration is which party bears responsibility for the tariff. If the seller is the importer and passes the tariff cost to the consumer, that cost generally is included in the taxable sales price; however, if the purchaser is responsible, the tariff often is not included. Although many states have yet to provide specific guidance on this topic, some have addressed it.  

Consider some illustrative guidance from South Carolina and New Jersey. 

In 2020, South Carolina specified in Rev. Rul. 20-4 that for sales and use tax purposes, when the purchaser is the importer and therefore personally liable for the tariff, the cost of the tariff is not included in the gross proceeds of sales or the sales price. That is because the purchase of the item and the purchaser’s payment of the tariff are two separate transactions.¹ The purchaser’s sales and use tax is based only on the gross proceeds of sales or the sales price of the transaction with the seller. It does not include the cost of the tariff the purchaser pays to the federal government. 

If someone other than the purchaser is responsible for the tariff (such as when the seller is the importer and any or all of the cost of the tariff is recovered from the purchaser), the charge is includable in the gross proceeds of sales or the sales price. It also is subject to sales and use tax unless the retail sale of the tangible personal property is otherwise exempt. 

In May, New Jersey published guidance on the sales tax treatment of tariff markups. The guidance states that if a seller passes tariff costs to the consumer, the charges are subject to sales tax as part of the taxable sales price, even if the purchase invoice separately states the tariff. To illustrate that concept, the guidance offers the following example: 

If the U.S. government imposes a tariff on furniture imported from another country, that tariff is passed along to the furniture seller. A seller may increase the sales price of the furniture sold to customers to maintain its profit margins. If the seller marks up the price of the furniture, even if it is billed as a separately stated fee, the increased cost and/or fee is subject to Sales Tax since it is part of the taxable sales price. 

Understanding the impact of sales tax and tariffs across states requires careful consideration of which party bears the responsibility for the tariff and how that is reflected in the taxable sales price. The variability in state regulations means businesses must stay informed about local tax laws to help ensure compliance and refine their financial strategies. As demonstrated by the examples from South Carolina and New Jersey, whether the seller or purchaser is responsible for the tariff can significantly affect the tax implications.  

Insight 

For companies and consumers alike, evaluating the benefits of being the importer of record for large purchases could offer tax advantages by excluding tariff costs from the taxable base. Ultimately, navigating the complexities of sales tax and tariffs demands a proactive approach to understanding state-specific guidelines and leveraging them to mitigate financial effects.  

Written by Steven C. Thompson and Gregory Devlin. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

Navigating Sales Tax and Multistate Challenges with Confidence 

At MGO, we help businesses manage the complexities of sales tax, tariffs, and multistate compliance through tailored guidance and strategic planning. Our State and Local Tax (SALT) professionals work across industries like manufacturing, retail, and technology to address shifting regulations, reduce risk, and improve tax efficiency. Backed by deep technical experience and real-world insight, we support organizations in making informed decisions that align with their growth and compliance goals. Contact us to learn more.  

The post Sales Tax and Tariffs: Understanding the Impact Across States  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The new tax law permanently restores 100% bonus depreciation for qualified property placed in service after January 19, 2025.

• This change allows you to fully deduct eligible improvement costs upfront — improving cash flow and long-term planning.

• Real estate investors should watch for state-level differences and consider cost segregation studies to maximize the benefit.

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On July 4, President Donald Trump signed the One Big Beautiful Bill Act into law. Among the sweeping tax and spending provisions, one key change stands out for real estate investors: the return of 100% bonus depreciation.

Bonus depreciation is a powerful way to front-load deductions on qualifying property. Although it was first introduced in 2002 following the events of Sept. 11, the percentage deduction has varied over the years. Most recently, the 2017 Tax Cuts and Jobs Act (TCJA) increased bonus depreciation to a full 100% deduction. However, the TCJA also included a phasedown schedule — dropping the deduction to 40% in 2025 and eliminating it entirely by 2027.

Now, that phasedown has been reversed. The new law permanently restores 100% bonus depreciation for qualified property placed in service on or after January 20, 2025.

5 Ways the Return of 100% Bonus Depreciation Could Impact Your Strategy

If you’re investing in real estate, the return of 100% bonus depreciation creates new opportunities. Here are five ways it could affect your planning and cash flow moving forward:

1. You Can Plan Ahead With Certainty

For years, bonus depreciation rates have been a moving target. With this new law, you get consistency. Knowing that 100% bonus depreciation is now permanent gives you the ability to map out property improvements or acquisitions with a clear understanding of the tax impact. No more rushing projects to get ahead of a phase-down deadline. This is especially useful if you’re managing multiple properties or planning major capital expenditures.

2. Bigger Deductions Mean Better Cash Flow

Land improvements and qualified improvement property (QIP) — such as parking lots, landscaping, and interior upgrades to commercial buildings — are major expenses for real estate investors. With 100% bonus depreciation, you can deduct these costs in full the year they’re placed in service. That’s a non-cash expense generating real tax savings, freeing up cash you can reinvest into more properties, upgrades, or operations.

3. Bonus Depreciation Is Automatic — But You Still Have Options

The new law keeps the same framework: bonus depreciation is automatic unless you elect out. This means you don’t have to remember to file any special paperwork to claim the deduction. But if you’re planning to sell a property soon and want to avoid a large depreciation recapture, you still have the option to elect out of bonus depreciation for specific asset classes. That flexibility gives you more control over your long-term tax strategy.

4. Don’t Forget About State Taxes

While federal bonus depreciation is back at 100%, state treatment varies widely. Some states conform fully, others partially, and some not at all. Several states have flip-flopped in past years, some years complying with federal bonus depreciation rules and other years decoupling from the federal deduction, so it’s important to monitor changes over time. Failing to account for federal-to-state differences in depreciation can lead to surprises when filing your state returns. Work with a professional to stay ahead of shifting state policies.

5. Cost Segregation Studies Just Got More Valuable

With 100% bonus depreciation locked in, cost segregation studies are more useful than ever. These studies help you identify components of your property — like lighting, flooring, plumbing, land improvements and specialty electrical systems — that can be depreciated over five, seven, or 15 years instead of the standard 39 years or 27.5 years for residential real estate. That makes more of your investment eligible for immediate expensing. If you’re buying, renovating, or developing commercial or residential property, a cost segregation study could lead to substantial tax savings (use our cost segregation assessment tool to see if you could benefit).

Increased Opportunity and Complexity for Real Estate Investors

The return of 100% bonus depreciation is big news for real estate investors. It gives you stronger cash flow, more predictable planning, and powerful incentives to invest in and improve your properties. But it also adds complexity — from deciding when to elect out to understanding how state rules diverge from federal law.

How MGO Can Help

Our Real Estate team is ready to help you take full advantage of the new bonus depreciation rules. Whether you’re planning improvements, exploring a cost segregation study, or preparing for a property sale, we’ll work with you to uncover tax-saving opportunities and support your long-term investment strategy.

Reach out today to start planning your next move.

The post What New Bonus Depreciation Rules Mean for Real Estate Investors appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The new law preserves SALT workarounds and Section 199A, but limits itemized deductions and expands QSB stock eligibility. 

• Asset managers must reassess their investment structures, energy projects, and carried interest planning. 

• Portfolio companies gain bonus depreciation and interest deduction flexibility but face new limits in 2026. 

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The enactment of the One Big Beautiful Bill Act (OBBB) on July 4 will have a significant impact on tax planning for the investment and asset management industry. 

The act has mostly favorable provisions for asset management, with varying implications for asset managers, portfolio company investments, and investors. With the legislation now final, investors and funds should focus on assessing its impact and identifying planning opportunities and challenges. 

Several key provisions offer different options for implementation. The effective dates will be important, and there may be time-sensitive planning considerations. The act could immediately affect decisions on how to structure new investments in tax efficient ways. 

This Alert highlights key provisions of the OBBB affecting the asset management industry. For a broader discussion of the act, see BDO’s Tax Alert: “Republicans Complete Sweeping Reconciliation Bill.” Also available are a table of major provisions, a recording of a July 10 webcast on the act, and discussions of the financial accounting implications, international tax provisions, and real estate implications.  

Key Implications for Asset Managers 

Preservation of SALT Cap Workarounds and Section 199A 

The act makes permanent the Section 199A deduction for pass-through business income. The deduction will still generally not be available for financial services, brokerage services, investing or investment management, trading, or dealing in securities. It will remain available for real estate investment trusts (REITs), banking, and some portfolio company operating businesses structured as pass-throughs. 

The OBBB makes the state and local tax (SALT) cap permanent while raising the threshold for five years and then reverting it to $10,000 in 2030. The cap is set at $40,000 for 2025 but phases down to $10,000 once income exceeds $500,000. Both thresholds will increase by 1% for each year through 2029. More importantly, lawmakers struck a provision that would have shut down SALT cap workarounds offered by states with pass-through entity tax (PTET) regimes.  

Takeaway 

Most states have now enacted PTET regimes that allow pass-through businesses to elect to be taxed at the entity level, where a deduction is allowed without regard to the individual SALT cap. The regimes can offer a valuable benefit to both managers and investors, particularly in years when a transaction will create significant state taxes. The elections can also have complex ramifications and should be modeled first.  

IRA Energy Credits Phaseout and Repeal 

The OBBB raises approximately $500 billion by repealing, restricting, and phasing out many of the energy credits enacted under the Biden administration as part of the Inflation Reduction Act (IRA). The effective dates for the phaseouts and new restrictions are staggered depending on the specific credit. The act does not affect the transferability or refundability of the credits. 

Takeaway 

Funds involved in energy investments or projects should carefully assess the impact of the rules. It may be prudent to accelerate some near-term projects while reassessing the economic viability of projects that are less shovel ready. The credit transfer market and tax equity financing market should remain robust for the next several years.   

Changing the Regulatory Mandate for Disguised Sales or Payments for Services 

The act changes a reference to regulations under Section 707(a)(2) that could affect fund managers. It essentially clarifies that the rules are effective even in the absence of regulations. 

Section 707(a)(2) allows the IRS to recharacterize certain transactions involving partners and partnerships. For example, Section 707(a)(2) can be used to treat the exchange of partnership interests for waived management fees or carried interests as a disguised payment for services. If applicable, this can result in fund managers or carry partners recognizing ordinary income rather than capital gains. Additionally, certain contributions of cash to a partnership followed by a distribution to the partners may be recharacterized as a purchase of partnership interests from the selling partners. This recharacterization could result in the recognition of additional taxable gain by the “selling” partner.  

The statute was previously drafted to provide that Section 707(a)(2) operates “under regulations prescribed by the Secretary.” To date, no regulations have been finalized addressing disguised sales of partnership interests. Further, only proposed regulations have been issued addressing disguised payment for services. The act modifies the statute to provide that Section 707(a)(2) operates “except as provided by the Secretary.” This appears to clarify that the statute operates even in the absence of regulations. Further, the amendment delegates significant authority to the IRS to provide operational rules. 

Takeaway 

The IRS has long argued that the prior statute is still operative even in the absence of regulations, and the legislation provides that it should not be “construed to create any inference with respect to the proper treatment under Section 707(a)” before the date of enactment. But there may be some question as to whether taxpayers can argue that the rules do not apply to prior transactions because of the lack of regulations. The provision is effective for services performed and property transferred after July 4, 2025. 

Pro-Rata Rules Under GILTI and Subpart F  

The act changes the pro-rata share rules to require a U.S. shareholder of a controlled foreign corporation (CFC) to include its pro-rata share of Subpart F or Net CFC Tested Income (formerly GILTI) if it owned stock in the CFC at any time during the foreign corporation’s tax year in which it was a CFC. It removes the requirement that the U.S. shareholder own the CFC’s stock on the last day the foreign corporation was a CFC. Treasury is given the authority to issue regulations allowing taxpayers to make a closing of the tax year election if there is a disposition of a CFC. 

Takeaway 

Managers will need to analyze current investments to understand the impact of this change. Managers will need to closely monitor the investor makeup of offshore funds, especially in the initial launch/fundraising phase. 

Active Business Losses Under Section 461(l) 

The OBBB makes the active loss limit under Section 461(l) permanent, while reducing the threshold at which it applies beginning in 2026. Lawmakers struck from the act a provision that would have changed how disallowed losses under Section 461(l) are treated. 

Takeaway 

A disallowed loss under Section 461(l) will still be converted to a net operating loss (NOL) in subsequent years. This allows investors to use an NOL created by Section 461(l) against other sources of income in future years. 

Repeal of Itemized Deductions 

The act makes permanent the repeal of most itemized deductions, including those for investment expenses (apart from investment interest) incurred for the production of income under Section 212. 

Takeaway 

Consistent with the treatment since 2018 under the Tax Cuts and Jobs Act, investment expenses will generally only be deductible to the extent they are considered ordinary and necessary expenses of an activity that rises to the level of a trade or business under Section 162. This will continue to impact investors in private equity, venture capital, and other investment funds where items such as management fees generally are not deductible at the individual level. 

Limit on Value of Itemized Deductions 

The OBBB creates a new limit on itemized deductions, including investment interest. The provision would essentially cap the value of itemized deductions so that the maximum benefit achievable is equivalent to offsetting income taxed at a top rate of 35% rather than offsetting income taxed at the higher individual marginal rate of 37%. 

Takeaway 

This limit applies after the deduction is capped based on the amount of net investment income. For individuals taxed at the 37% rate, this is essentially equivalent to imposing a 2% tax on the total amount of otherwise deductible investment interest (and any other itemized deductions).    

Creation of Trump Accounts 

The OBBB establishes new tax-preferred investment accounts for individuals under the age of 18. Contributions are set to begin one year after enactment and are allowable up to $5,000 per year until the calendar year before an individual turns 18. A pilot program will provide a $1,000 tax credit for contributing to an account for every child born from 2025 through 2028. Eligible investments are limited to mutual funds or exchange traded funds that track a qualified index, do not use leverage, and have expenses of less than 0.1%. Qualified indexes include the S&P 500 and other indexes for equity investments primarily in U.S. companies. Industry-specific indexes are prohibited but indexes based on market capitalization are allowed.  

Takeaway 

The automatic $1,000 contribution for children born from 2025-2028 will create millions of potential accounts for the asset management industry to administer.  

Key Implications for Portfolio Company Investments 

Expansion of Qualified Small Business Stock Eligibility 

The act enhances the exclusion of gain for qualified small business (QSB) stock under Section 1202 issued after July 4, 2025: 

• In addition to the existing 100% exclusion for qualified stock held for five years, taxpayers can qualify for a 50% exclusion after three years and a 75% exclusion after four years. 

• The current limit on the exclusion (the greater of $10 million or 10 times basis) is increased to the greater of $15 million or 10 times basis, indexed to inflation beginning in 2027.  

• The limit on gross assets at the time stock is issued is increased from $50 million to $75 million, indexed to inflation beginning in 2027. 

Takeaway 

QSB stock is a powerful tax planning structure that has become increasingly popular with private equity in recent years. The changes make the structure more accessible and increase the size of potential investments. State conformity to both the existing rules and new changes will be important for determining whether the structure is appropriate. Key states such as California do not conform to the federal QSB stock exclusion.  

Section 163(j) Limit on the Interest Deduction 

The OBBB permanently restores the exclusion of amortization, depreciation, and depletion from the calculation of adjusted taxable income (ATI) for purposes of Section 163(j), which generally limits interest deductions to 30% of ATI. The change is effective for tax years beginning after 2024. 

The act makes two unfavorable changes for tax years beginning after 2025. Income from Subpart F and Net CFC Tested Income (formerly GILTI) will be excluded from ATI along with Section 78 gross-up amounts for indirect foreign tax credits. More importantly, the limit will apply to any interest capitalized to other assets, except interest capitalized to straddles under Section 263(g) or to specified production property under Section 263A(f). 

Takeaway 

The changes may allow highly leveraged portfolio companies to deduct suspended interest carryforwards beginning in 2025. Although the act essentially shuts down interest capitalization planning for years beginning in 2026 or later, those strategies remain viable for the 2024 and 2025 tax years. The legislation will not claw back any interest capitalized to other assets in tax years beginning before 2026, even if the capitalized interest has not been fully recovered with the asset. Interest capitalization planning in 2024 and 2025 could help some portfolio companies deduct additional interest more quickly and could be particularly beneficial for companies that may still face the limit even after the favorable change to ATI.  

Bonus Depreciation and Small Business Expensing 

The act permanently restores 100% bonus depreciation for property placed in service after January 19, 2025. The change could affect the Section 743(b) basis adjustment for funds purchasing interests in a partnership. The act also increases the Section 179 deduction to $2.5 million with a phaseout threshold of $4 million for property placed in service after 2024, with both thresholds indexed to inflation in future years. 

Restoration of Limitation on Downward Attribution of Stock Ownership  

The act reinstates Section 958(b)(4), which, prior to the Tax Cuts and Jobs Act (TCJA), prohibited the downward attribution of stock ownership from a foreign person to a U.S. person for purposes of determining CFC and U.S. shareholder status. The repeal of Section 958(b)(4) under the TCJA resulted in many foreign corporations becoming CFCs and created filing obligations for constructive U.S. shareholders. These rules are effective for tax years beginning after December 31, 2025. 

Takeaway 

The restoration of Section 958(b)(4) could simplify reporting obligations for certain taxpayers. Taxpayers that were affected by the repeal of Section 958(b)(4) in the past should carefully review these rules to see if they are impacted by the reinstatement of the section. 

Section 174A Research Expensing 

The act permanently restores the expensing of domestic research costs for tax years beginning after December 31, 2024. The permanent expensing rules are created under new Section 174A, while Section 174 is retained and amended to provide for the continued 15-year amortization of foreign research costs. Taxpayers retain the option of electing to capitalize domestic Section 174A costs and amortize such amounts over 10 years or the useful life of the research (with a 60-month minimum).  

The act will generally require taxpayers to implement the new treatment with an automatic accounting method change on a cut-off basis, but it offers two alternative transition rules. Taxpayers can elect to claim any unamortized amounts incurred in calendar years 2022, 2023, and 2024 in either the first tax year beginning after 2024 or ratably over the first two tax years beginning after 2024. Separate transition rules are available for eligible small business taxpayers meeting the gross receipts test under Section 448 ($31 million in 2025) for the first tax year beginning after 2024, allowing those taxpayers to file amended returns to claim expensing for tax years before 2025. 

Takeaway 

There are important interactions between Section 174 and other tax attributes, especially for portfolio companies that will continue to face a limit on interest deductions even after the OBBB change. Companies should consider modeling out the implementation options and capitalization elections to determine the most favorable treatment. 

Real Estate Investment Trusts   

The OBBB raises the percentage of allowable assets a REIT may have in a taxable REIT subsidiary from 20% to 25% effective for tax years beginning after 2025. The change provides additional structuring flexibility for managers with REITs in their structure.  

Deductions for Overtime Pay and Tip Income 

The act creates a deduction of up to $12,500 (single) and $25,000 (joint) on qualified overtime compensation, as well as a deduction of up to $25,000 on qualified tips reported on Forms W-2, 1099-K, 1099-NEC, or 4317. These deductions are allowed from 2025 through 2028 without regard to whether a taxpayer itemizes deductions.  

Takeaway 

These new deductions will carry certain reporting requirements and compliance complexities, impacting portfolio companies with eligible employees. Hospitality companies, in particular, will need to make several determinations at the entity level that could affect whether employees qualify. All companies should consider communicating with employees that receive tips or overtime wages on the withholding considerations.    

Key Implications for Investors 

Endowment Tax Increase  

The OBBB will increase the 1.4% tax on net investment income of private colleges and universities, but it will limit the application of the tax to universities with at least 3,000 tuition-paying students (up from 500). The OBBB imposes a new rate structure with excise taxes up to 8%.  For institutions with a student adjusted endowment over $500,000 and not exceeding $750,000, the rate remains 1.4%.  For institutions with a student adjusted endowment over $750,000 and not exceeding $ 2 million, the rate is 4%. For institutions with a student adjusted endowment over $2 million, the top rate is 8%. The changes are effective for tax years beginning after 2025. 

Takeaway 

Affected universities have some runway before the change takes effect, particularly those with fiscal years ending on June 30. There may be planning opportunities to accelerate income or trigger gains at lower rates.  

Written by Shawn McKenna, Joe Pacello and Dustin Stamper. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

How MGO Can Provide Strategic Tax Guidance for Asset Managers Facing OBBB Changes 

MGO works with asset managers, private equity funds, and investors to turn policy shifts into opportunity. The OBBB introduces a wide array of changes, from enhanced QSB stock benefits and bonus depreciation to stricter rules around disguised sales and interest deductibility. Our tax team help you model scenarios, optimize fund structures, and align tax strategies with evolving rules. Whether you’re rethinking offshore structures, planning around energy credit phaseouts, or managing carried interest treatment, we provide you with the insight and execution you need to keep your investments tax efficient and future ready. Contact us to learn more.  

The post OBBB Is Final: What’s Next for Asset Managers?  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• IRS Form 7217 introduces new tax reporting requirements for investors in private equity, hedge funds, investment partnerships, or any other partnership.  

• Partners receiving in-kind distributions must file Form7217 for each distribution and report basis of the distributed property, including any basis adjustments to such property.  

• Fund managers should prepare for investor questions and compliance impacts as the IRS increases scrutiny of partnership transactions and basis shifting.  

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New Filing Obligations for In-Kind Distributions 

Beginning with tax years starting in 2024, the IRS now requires partners in partnerships to report in-kind distributions of property using a newly released form — Form 7217: Partner’s Report of Property Distributed by a Partnership. This rule applies broadly across the investment fund landscape, including private equity, venture capital, hedge funds, and fund-of-funds that receive securities or other property distributions not classified as cash. 

If your fund structure allows for non-cash distributions — especially in restructuring scenarios or when forming continuation funds — your investors may now be required to attach Form 7217 to their tax returns for each distribution event. Making sure you’re compliant and clearly communicative with your investors will be critical.  

When Does Form 7217 Apply? 

Form 7217 applies when a partner receives a distribution of property other than cash or marketable securities treated as cash. Investment partnerships meeting certain criteria can distribute marketable securities tax-free, allowing partners to defer income recognition until those securities are sold. But this deferral still comes with added compliance: every qualifying distribution event now requires its own Form 7217. 

Reporting includes: 

• Date of each distribution 

• Basis of distributed property 

• Any basis adjustments related to the transaction 

Importantly, a separate form is required for each distribution date. That means multiple distributions throughout the year will result in multiple Form 7217 attachments— raising complexity and potential audit exposure for recipients. 

Why This Matters: IRS Focus on Partnership Scrutiny 

This change is part of a larger trend: increased IRS scrutiny of basis-shifting and partnership transactions. Form 7217 represents another step in the agency’s efforts to monitor and track partnership activity more closely, especially in areas involving deferred tax treatment and in-kind distributions. 

Fund managers should anticipate an uptick in questions and document requests from LPs and investor tax advisors as we quickly approach the 2024 tax season extended deadline. Being proactive now can reduce filing risk and streamline communication. 

How Fund Managers Can Prepare 

To help investors meet their compliance obligations and avoid downstream tax issues, your firm should consider the following steps: 

1. Update Tax Reporting Workflows 

Integrate Form 7217 requirements into your fund’s year-end tax packages and document handoffs. 

2. Communicate Early with Investors 

Inform LPs of their obligations under the new rules, especially if your fund strategy involves in-kind distributions. 

3. Consult with Tax Advisors 

Work with partnership tax professionals to ensure accurate tracking and address any gray areas involving property classification. 

The post What Fund Managers Need to Know About New IRS Reporting Rules  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• In 2021, the IRS issued two rulings with opposite outcomes on whether businesses qualified under Section 1202.

• The IRS ruled an insurance agency did not perform brokerage services — but found a real estate platform did.

• These cases highlight the ambiguity in IRS guidance and why businesses should review their status with a tax advisor.

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Section 1202 of the Internal Revenue Code offers one of the most powerful tax incentives available: the potential for a 100% exclusion of capital gains on the sale of qualified small business stock (QSBS).

But qualifying is not always straightforward. Two rulings released in 2021 highlight how the IRS is interpreting a key exclusion — brokerage services — with surprising differences. This matters for companies operating near the edge of excluded industries (certain business types that are specifically disqualified from receiving the tax benefit, such as health, law, finance, and brokerage services).

What the IRS Said in 2021

In April 2021, the IRS issued PLR 202114002, addressing whether a taxpayer’s insurance agency qualified under Section 1202. The company operated under two models: direct appointments with insurance carriers and wholesale intermediary agreements. In both models, the agency provided administrative services like client advising, claims reporting, and support.

Even though insurance is an excluded industry, the IRS did not disqualify the business. It concluded the agency was not engaged in brokerage services, a category that would otherwise make the stock ineligible for QSBS treatment.

Later in 2021, the IRS issued Chief Counsel Advice memorandum CCA 202204007. This internal IRS guidance focused on a tech-enabled platform that allowed non-binding reservations of rental properties. The platform processed payments and kept a property database, but did not finalize leases or represent either party. The business also held real estate broker licenses.

In this case, the IRS found the platform was engaged in brokerage services and did not qualify for Section 1202 gain exclusion. Instead of using a narrow or industry-specific definition of “brokerage,” the IRS applied reporting rules from another part of the tax code — Section 6045 — and introduced policy reasoning to support a broader exclusion.

Why This Contrast Matters

These two rulings reached opposite conclusions about what counts as brokerage. The insurance agency, which might normally be seen as excluded, was considered eligible. The tech platform, which arguably operated more like a software company, was disqualified.

The difference is more than just factual nuance. The Chief Counsel Advice introduced policy rationale, saying that “brokerage” should be interpreted broadly to limit eligibility under Section 1202. That’s a new development. None of the 12 known private letter rulings have taken that approach.

The takeaway? IRS interpretation is evolving — and not always in the taxpayer’s favor.

What This Means for Your Business

Most companies assume they qualify for Section 1202 simply because they’re structured as C corporations and meet the asset and holding period requirements. But those are just the starting point.

The most complex and overlooked test is whether your company is engaged in a qualified trade or business. That’s where the real analysis begins. The law excludes broad categories like health, finance, law, consulting, and brokerage — many of which increasingly overlap with high-growth, tech-enabled industries. Think digital health platforms, fintech services, or AI-powered advisory tools.

Whether your business qualifies doesn’t depend on how the IRS “chooses” to interpret your model — it depends on how clearly your advisors position and support your case based on the facts. In these gray areas, a well-documented narrative can make the difference between full gain exclusion and a missed opportunity.

Why the Qualified Trade or Business Test Stands Alone

Other elements of Section 1202 are factual and can be reviewed with documentation, such as whether:

• Stock was issued directly by the company

• Gross assets were under $50 million at the time

• The stock has been held for five years

But the qualified trade or business test is different. It requires understanding how the IRS views certain industries, analyzing operational facts, and building a position that can be held under review.

Checklists are not enough. This is the part of Section 1202 that requires deeper legal and tax analysis, not assumptions.

Final Thought

Your business may already be promising shareholders or investors that it qualifies under Section 1202. But as these IRS rulings show, that promise only holds if it’s backed by a solid and defensible position.

Now is the time to assess where your business falls — and whether you’re properly documenting your eligibility before it’s challenged.

How MGO Can Help

MGO works with growth-focused businesses across industries to evaluate their Section 1202 status, prepare documentation, and support capital strategies. We help find risk areas, align operational facts with IRS interpretations, and support eligibility before or during an exit.

If your business is in a gray area — or wants to get ahead of the rules — let’s talk.

The post What Two IRS Rulings Reveal About Section 1202 Eligibility appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Section 1202 offers capital gains exclusion for QSBS but requires detailed qualification and documentation. 

• Eligibility depends on both objective facts and nuanced interpretation of business activity. 

• Companies — not shareholders — should lead the Section 1202 qualification process and share results with investors. 

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If your company has issued or plans to issue stock, Section 1202 of the Internal Revenue Code could provide your shareholders with one of the most powerful tax planning opportunities available. Known as the Qualified Small Business Stock (QSBS) exclusion, Section 1202 allows eligible shareholders to exclude up to 100% of capital gains from federal income tax on the sale of their stock — if specific criteria are met. 

Though Section 1202 has existed since 1993, it gained traction after the 2017 Tax Cuts and Jobs Act lowered corporate tax rates, making QSBS one of the few remaining high-impact planning tools for growth-stage companies — along with the research and development (R&D) tax credit and bonus depreciation. 

But this isn’t something that happens automatically. The rules are layered, the guidance is limited, and a casual approach can result in missed opportunities or unintended exposure. Section 1202 deserves focused attention and deliberate planning. 

The Value Behind Section 1202 

Section 1202 provides a unique tax benefit: qualifying shareholders may exclude from income greater than $10 million or ten times their investment basis in stock. That makes it a strategic asset for early investors, founders, and employees with equity — particularly in industries where growth and exit events are part of the long-term plan. 

Despite the high value, Section 1202 remains underutilized. Many companies assume they qualify but never take steps to confirm the details. At the same time, investors often expect — or even require — 1202 status in contracts signed by issuers. When companies fail to verify and document their status, it creates uncertainty that can complicate capital raises, shareholder communications, or M&A negotiations or investments. 

Understanding What Makes a Company Qualify 

Qualifying for Section 1202 is part science, part strategy. Several conditions can be verified through documentation. These include whether the shareholder bought the stock at original issuance, the date the stock was issued, and whether the company’s gross assets were under $50 million at the time of issuance. These are foundational tests and can typically be confirmed with cap table records and financial statements. 

However, other elements are less straightforward. The most critical part of the 1202 analysis is deciding whether your company is a “qualified trade or business.” Unlike asset thresholds or holding periods, this isn’t a checkbox — it requires legal interpretation, familiarity with evolving IRS thinking, and a clear narrative about how your business operates. If you’re in a gray area, this is where the real analysis begins. 

Section 1202 categorically excludes broad types of businesses — such as those engaged in health, law, consulting, brokerage, and finance — but it offers little clarity on how those terms are defined or where those boundaries lie. This ambiguity means that even businesses working in related or emerging industries may not know where they stand. 

Don’t Put the Burden on Your Shareholders 

Section 1202 status is not something individual shareholders can — or should — figure out on their own. They don’t have access to your financials, legal history, stock issuance records, or the operational detail needed to determine eligibility. If your company issued shares in exchange for cash, property, or services, it is your responsibility as management — not theirs — to evaluate and document whether that stock qualifies for the QSBS exclusion. 

This isn’t just good tax planning; it’s a matter of fulfilling the expectations you’ve set with investors — especially if you’ve raised capital under the assumption or implication that your stock qualifies. In that sense, Section 1202 eligibility functions as a corporate tax asset. Like any high-value benefit, it needs to be understood, tracked, and preserved — particularly when planning for new investment rounds, reorganizations, or exit transactions. 

Leaving this analysis to shareholders — or suggesting they should determine it independently — is not realistic and not defensible. If your investor base includes individuals, family offices, funds, or even crowdfunding participants, it’s management’s duty to confirm and communicate 1202 status clearly. Without that, shareholders may hesitate to claim the benefit, or worse, face scrutiny if challenged during an audit or liquidity event. 

How to Move Forward with Confidence 

The good news is that most Section 1202 eligibility criteria can be evaluated and documented with the right support. If you’re unsure where you stand, now is the time to assess. Focus on reviewing your entity structure, stock issuance records, and the nature of your business operations. 

Where interpretation is needed — especially around excluded industries — consider how your business delivers value. Are you acting as a passive intermediary, or do you provide infrastructure, administrative support, or proprietary systems? These distinctions matter and could influence how the IRS or buyers assess your eligibility under Section 1202. 

Just as important: understanding your eligibility allows you to quantify the potential benefit. The $10 million exclusion is just a starting point. For many companies, the actual available gain exclusion could be far higher — $20 million, $37 million, or more. That kind of tax asset deserves to be identified, protected, and planned around. 

The most important and least defined requirement is whether your company is considered a qualified small business engaged in a qualified trade or business. That determination cannot be made through checklists alone — it demands thoughtful analysis and documentation. 

Reference Recent IRS Rulings 

If your business falls into a gray area, you may want to review recent IRS rulings that have addressed similar situations. These rulings don’t apply beyond the taxpayers involved, but they reveal how the IRS thinks about “qualified” versus “excluded” businesses. 

The IRS has offered little formal guidance on what qualifies as a trade or business under Section 1202. Recent rulings suggest the agency may rely on dictionary definitions or broader policy goals when making eligibility determinations — adding another layer of risk for companies in ambiguous categories. 

For a breakdown of how the IRS has handled these decisions in real-world cases, read our companion article: What Two IRS Rulings Reveal About Section 1202 Eligibility. 

How MGO Can Help 

MGO is a top 100 CPA and advisory firm that works with dynamic, growth-focused businesses across technology, life sciences, manufacturing, cannabis, and other sectors. Our tax professionals help companies evaluate Section 1202 eligibility, build documentation strategies, and prepare for audits, investor scrutiny, or exit transactions. With a balance of technical tax insight and strategic industry knowledge, we support clients from startup through scale — and beyond. 

Contact us today to assess whether your company uniquely qualifies — and how you can support your Section 1202 position with the right documentation and planning. 

The post How Your Company Can Unlock Section 1202 Tax Savings  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Bonus depreciation is a tax provision that allows you to deduct a large portion of qualifying real estate costs upfront, but it is phasing down each year and may be eliminated after 2026 unless Congress takes action.

• Key assets that qualify include land improvements like parking lots and sidewalks, as well as qualified improvement property (QIP), which covers interior upgrades to commercial buildings such as flooring, lighting, and internal HVAC systems.

• A cost segregation study can help you identify and reclassify property components with shorter depreciation periods, making more of your investment eligible for accelerated deductions.

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As a real estate investor, bonus depreciation can be a powerful tool to reduce your tax liability and improve cash flow. But with recent changes — and the possibility of future adjustments — it’s important to understand how this tax provision works and how it affects your investments.

What Is Bonus Depreciation?

Bonus depreciation is a tax provision that allows businesses to immediately deduct a substantial percentage of the purchase price of eligible assets in the year they are placed in service, rather than spreading the deduction over the asset’s useful life. This accelerated depreciation is designed to encourage investment by improving cash flow and reducing tax liability.

Historically, bonus depreciation has been a tool used by Congress to stimulate economic growth. It was first introduced after the events of September 11, 2001, allowing a 30% immediate write-off for qualifying assets. Over the years, the percentage has fluctuated, with significant changes implemented through various legislative acts.

Evolution of Bonus Depreciation

The 2017 Tax Cuts and Jobs Act (TCJA) made a landmark change by increasing bonus depreciation to 100% for qualified property acquired and placed in service after September 27, 2017. This meant businesses could fully expense eligible assets upfront, providing a substantial tax benefit. However, the TCJA also outlined a phasedown schedule:

• 2023: 80% bonus depreciation

• 2024: 60% bonus depreciation

• 2025: 40% bonus depreciation

• 2026: 20% bonus depreciation

Absent further legislative action, bonus depreciation is set to phase out entirely after 2026.

Will 100% Bonus Depreciation Return?

In a March 2025 address to Congress, President Donald Trump stated:

“… as part of our tax cuts, we want to cut taxes on domestic production and all manufacturing. And just as we did before, we will provide 100 percent expensing. It will be retroactive to January 20th, 2025 …”

Although he didn’t explicitly mention bonus depreciation, this language alludes to the provision introduced in the 2017 TCJA (enacted under Trump’s previous administration). If reinstated, 100% bonus depreciation could offer substantial tax benefits for businesses — but, for now, it remains a proposal subject to Congressional approval.

What Qualifies for Bonus Depreciation?

Bonus depreciation applies to assets with a useful life of 20 years or less under the Modified Accelerated Cost Recovery System (MACRS), the depreciation method used in the United States.

For real estate investors, bonus depreciation is particularly beneficial for two categories of assets:

• Land improvements – Assets like parking lots, sidewalks, and landscaping typically qualify.

• Qualified improvement property (QIP) – Interior improvements to commercial (non-residential) buildings placed in service after the original structure.

QIP: A Key Opportunity for Real Estate

QIP is one of the most significant areas where you, as a real estate investor, can leverage bonus depreciation. If you’ve made interior improvements to your commercial buildings after they’ve been placed in service, you may be sitting on a valuable tax strategy.

Examples of QIP include:

• Interior partitions and walls (excluding structural framework)

• Ceilings

• Flooring

• Electrical, plumbing, and internal HVAC upgrades

• Cosmetic enhancements for tenants

QIP excludes:

• Structural framework modifications

• Building enlargements

• Additions like elevators or escalators

Without bonus depreciation, QIP would be depreciated over 15 years. With bonus depreciation, investors can immediately expense a portion of the cost (40% in 2025, potentially 100% if new tax legislation passes), with the remaining cost basis being depreciated over the assets’ useful life.

The Role of Cost Segregation Studies

Cost segregation is a strategic tax planning tool that allows property owners to identify and reclassify components of a building to shorter depreciation periods, accelerating depreciation deductions. Instead of treating the entire property as 39-year real property (for commercial buildings), a cost segregation study might reclassify components as five-, seven-, or 15-year assets, making them eligible for bonus depreciation.

For example, a study might identify:

• Five-year property: Carpet, decorative lighting, specialized electrical systems

• Seven-year property: Office furniture, equipment

• 15-year property: Landscaping, parking lots, fencing

Even as bonus depreciation phases down, cost segregation remains a valuable strategy — enabling you to identify assets that qualify for shorter depreciation lives, increasing tax benefits and improving cash flow. If bonus depreciation returns to 100%, cost segregation studies will likely increase as investors seek to maximize depreciation benefits for qualified improvements on newer properties.

Key Considerations for Real Estate Investors Moving Forward

As a real estate investor or professional, staying informed about these tax provisions is vital. Here are some key considerations:

• Legislative changes: While Trump has proposed restoring 100% bonus depreciation retroactively to January 2025, this is not yet law. Investors should plan for the current step-down schedule but stay alert for potential changes.

• Timing of asset acquisitions and improvements: If 100% bonus depreciation is reinstated, it could significantly impact investment strategies. Investors planning major renovations or acquisitions may benefit from waiting for legislative clarity.

• Election options: Bonus depreciation is automatic unless investors elect out, which can be done separately for each asset class life (five-year, seven-year, 15-year). Work with a tax professional to determine if long-term tax strategies favor traditional depreciation methods.

• State tax situations: Bonus depreciation treatment varies by state. Some states conform to federal rules, while others require alternative calculations. State policies can change annually, so knowing your state’s approach is crucial for accurate tax planning.

What’s Next for Bonus Depreciation?

If Congress reinstates 100% bonus depreciation, it could impact your tax planning for 2025 and beyond. Whether you’re acquiring new properties, making improvements, or considering a cost segregation study, understanding these changes can help you maximize deductions and optimize your real estate investments.

How MGO Can Help

Navigating bonus depreciation rules can be complex, but you don’t have to do it alone. Our Real Estate team has extensive experience helping businesses and investors navigate bonus depreciation — including determining qualifying assets and providing cost segregation services.

We can help you assess how bonus depreciation could impact your portfolio and identify opportunities to reduce your tax burden and increase your cash flow. Reach out to our team today to explore your options.

The post Bonus Depreciation: What Real Estate Investors Need to Know appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Confirm the new auditor meets industry regulations and independence standards to keep compliance and avoid potential concerns. 

• Selecting an auditor with relevant experience supports financial reporting accuracy and a better understanding of industry requirements. 

• A structured transition process supports a smooth change, reducing potential disruptions and keeping financial reporting on track. 

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Changing auditors is a significant decision for any business, whether private or publicly traded. The choice affects regulatory compliance, financial reporting quality, and stakeholder confidence. If your company is considering a change, these key factors can help you navigate the transition effectively: 

1. Regulatory and Compliance Considerations 

Publicly traded companies must follow oversight and reporting requirements set by the Public Company Accounting Oversight Board (PCAOB) and the U.S. Securities and Exchange Commission (SEC). Auditor independence, rotation, and reporting timelines are critical factors. 

Private companies, while not subject to the same requirements, still need to follow American Institute of Certified Public Accountants (AICPA) standards. Reviewing whether a new audit firm meets industry-specific rules and regulatory expectations helps avoid compliance risks. 

2. Industry Knowledge and Specialization 

An audit firm with experience in your industry may offer deeper insights into accounting standards, risks, and financial reporting challenges. Businesses in technology, healthcare, real estate, or manufacturing face unique regulatory and financial considerations. 

Auditors with a background in industry-specific frameworks — such as Financial Accounting Standards Board (FASB)  or Governmental Accounting Standards Board (GASB) rules for public entities — can help the process. 

3. Transition and Onboarding Process 

Switching auditors involves transferring financial records, adapting to new audit methodologies, and maintaining reporting consistency. A well-organized transition reduces potential delays and misalignment between financial teams and the new audit firm. 

Your company should evaluate how the new auditor will handle the onboarding process — including access to prior audit documentation, risk assessments, and compliance reporting. A structured plan can help minimize disruptions. 

4. Audit Fees and Cost Transparency 

Audit fees vary based on factors such as company size, industry complexity, and added reporting requirements. While cost should not be the only consideration, understanding the full pricing structure is important to avoid unexpected charges. 

Some firms offer a base audit fee but charge separately for added services — including internal controls testing, risk management assessments, or regulatory filings. Requesting a detailed breakdown of fees allows for better budgeting and cost planning. 

5. Reputation and Stability of the Audit Firm 

The reputation and financial stability of an audit firm can change external feelings, especially for publicly traded companies. If an auditor has been involved in regulatory investigations, PCAOB deficiencies, or high-profile audit restatements, it may raise concerns for investors and stakeholders. 

Your company can review an audit firm’s regulatory history, inspection reports, and client feedback to assess its standing in the industry. A well-established firm with a history of quality audits may provide greater reliability in financial reporting. 

6. Technology and Data Security in Audits 

Advancements in audit technology have improved efficiency, accuracy, and risk assessment. Some firms use data analytics, AI-driven audit tools, and cloud-based financial reporting platforms to enhance the audit process. 

If a company handles sensitive financial or customer data, evaluating an audit firm’s cybersecurity measures is essential. Strong data security protocols help reduce risks related to unauthorized access or breaches. 

7. Communication and Audit Process Alignment 

The relationship between a company and its auditor should involve clear expectations around reporting timelines, issue resolution, and overall communication. 

Some auditors take a more proactive approach, providing regular updates, insights into financial risks, and recommendations for process improvements. Others may follow a more structured, compliance-only framework. Your business should assess which approach aligns best with your needs. 

8. Independence and Potential Conflicts of Interest 

Audit firms must follow strict independent guidelines to avoid conflicts of interest. Regulations limit non-audit services provided to clients — such as consulting, tax advisory, or internal controls assessments — to prevent potential bias in audit opinions. 

Both public and private companies should review whether a prospective auditor has existing relationships that could affect objectivity. The SEC and PCAOB provide guidance on situations that may impair independence. 

Think Ahead for a Smooth Auditor Transition 

Changing auditors is a significant decision that affects financial reporting, regulatory compliance, and stakeholder trust. Whether your company is looking for a different audit approach, advanced technology, or a firm with deeper industry knowledge, selecting the right provider is critical to a smooth transition. 

If your business is evaluating a new audit firm, researching regulatory history, pricing transparency, and service capabilities can help set up a solid foundation for the next audit cycle. 

Consider MGO for Your Next Audit 

At MGO, we bring extensive experience across multiple industries — offering audit and assurance services tailored to public and private companies, government entities, and high-growth organizations. We combine regulatory knowledge, advanced audit technology, and a commitment to transparency to help your business navigate the complex financial reporting landscape. Our approach goes beyond compliance by delivering meaningful insights that support financial accuracy, risk management, and long-term success. Contact us today.

The post 8 Key Considerations When You’re Changing Auditors appeared first on MGO CPA | Tax, Audit, and Consulting Services.