The document discusses the impact of the new ASC 842 lease accounting standard on the commercial real estate (CRE) sector, emphasizing significant changes for lessees and the need for careful planning in its adoption. It also highlights how rising construction costs affect property insurance, prompting businesses to reassess coverage and liabilities. Additionally, it provides insights on tax planning in light of potential legislative changes and the remaining uncertainties surrounding the Build Back Better Act.

1. JANUARY 2022 | ISSUE NO. 25
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QUARTERLYHOT TOPICS
CBIZ Commercial Real Estate
Reduce Taxes. Maximize Cash Flow. Minimize Risk.
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IN THIS ISSUE:
CBIZ’s Real Estate practice
is uniquely positioned to
help you minimize risk
and capitalize on market
opportunities.
We work with owners,
managers, operators
and investors, as well as
commercial real estate
developers and partnerships
in all of the major CRE
sectors: retail, office, hotel,
multi-family, shopping
centers and real estate
investment trusts.
Changes in Lease Accounting
Are About to Get Real for CRE
By the CBIZ MHM Complex Accounting Team
T
he long-awaited deadline has finally arrived for private companies to adopt the new lease
accounting standard, ASC 842, which changes how organizations account for leases.
While the new standard might appear to be a simple change in the accounting rules, it
is much more. It will impact how businesses operate, and it will require owners and operators
of commercial real estate (CRE) to make significant changes to the way they do business. The
effect will be magnified by the impact of hybrid work models on the office rental landscape.
Learning the complexities of the process and applying them without error will be no easy
feat. With the number of leases CRE entities generally manage and hold, the standard could
be uniquely complex to adopt for the sector. It may affect current arrangements with groups
leasing properties from CRE.
Changes in Lease Accounting
Are About to Get Real for CRE
PAGE 1
Additional Industry Insights
PAGE 2
Companies Are Reassessing
Space with a Rent vs
Productivity Calculation
PAGE 3
Tax Planning – the Knowns
and the Unknowns
PAGE 4
How Rising Construction Costs
Can Affecty Your Insurance
PAGE 6
Commercial
Real Estate

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Additional Industry Insights
Additional Content & Resources
2021-22 Tax Planning Guide, including 2021
and 2022 tax charts, opportunities to adjust
prior tax returns, second look at CARES Act tax
change and time sensitive opportunities. Access
it here.
The Important Role Appraisals Play in Trust
and Estate Matters during Uncertain Times
(online here)
6 Strategies to Combat the Great Resignation.
Strategies aimed at limiting turnover and
retaining your greatest asset — your people!
Download your free copy here.
Is Your Organization Prepared for an
Emergency Evacuation? Check your plan
against this guidance.
Safeguarding Against the Unexpected.
We’ve learned it’s not a question of IF, but
WHEN. This guide is designed to help you
anticipate risks and create a plan that keeps
your business running smoothly.
(Continued from page 1)
Here’s a look at how the new accounting standard may
impact the CRE sector.
What Is ASC 842?
The Financial Accounting Standards Board (FASB)
introduced ASC Topic 842, Leases to create more
consistency between the accounting for companies with
leases (lessees) and companies that manage leases
(lessors). New requirements went into effect in late 2018
for public companies and, after several extensions, finally
went into effect for most private companies for fiscal
years beginning after Dec. 15, 2021.
Changes in the new ASC 842 lease accounting standard
will require organizations to record all leases on their
balance sheet, except for short-term leases. For lessors,
this requirement isn’t the part of the standard that’s
new, but it is a significant change for lessees. Prior to
ASC 842, lessees recorded most of their leases off the
balance sheet. Some companies in the CRE sector may
be on the lessee side of an arrangement, but it is likely
that the lessor accounting changes will be the most
applicable to commercial real estate groups. The lessor
changes included in ASC 842, while not as significant
as the lessee changes, will still require advance
preparation to implement.
How Will ASC 842 Affect CRE?
Among the biggest changes to lease accounting for lessors
are the updates ASC 842 makes to the lease classification
test. The new lease accounting standard changes
definitions for leases and the process by which leases are
classified for accounting purposes. A sales-type lease,
for example, is no longer required to have selling profit or
loss. Lessors can only have a direct financing lease if there
is a residual value guarantee by an unrelated party that,
along with the present value of the sum of lease payments
(including any residual value guaranteed by the lessor),
equals or exceeds the fair value of the underlying asset, all
of which is probable of collection.
Lessors should prepare for expanded disclosure
requirements under ASC 842 to provide more information
on the nature of their leases and sub-leases. They will
also be required to disclose how they manage the risk
associated with the residual value of their leased assets.
The financial impact of ASC 842 adoption falls more on
the lessee accounting side, but there may nevertheless
be an impact on lessor-CRE groups. For example, the new
accounting standard does not require short-term leases
to be recorded on a balance sheet, which may lead to
more lessees opting for short-term leases.
The CRE industry is already witnessing a decline in long-
term leases, especially in the aftermath of the pandemic.
Remote work is proving to be a cost-saving alternative to
DISCLAIMER: This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional
advice. This information is general in nature and may be affected by changes in law or in the interpretation of such laws. The reader
is advised to contact a professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in
connection with the use of this information and assumes no obligation to inform the reader of any changes in laws or other factors that
could affect the information contained herein.
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(Continued from page 2)
T
he COVID pandemic impacted nearly every facet of
the business world, especially the physical office
work environment. While countless challenges and
uncertainties have evolved since the onset, one element
that continues to become clearer and grow stronger is
the value of the in-person workplace.
This also comes with a greater understanding of new
remote innovations and hybrid working models that
emerged with a more digitized and democratized
workforce who not only desires flexibility in the work
arrangement, but strongly agrees that the office is a
major component for success.
Companies are reassessing space needs - size and
design - evaluating space productivity considering the
number of employees or hours occupied in a day/week,
what amenities are needed (kitchen out? tech rooms
in?), and what employees expect when in the office and
from the hybrid model.
■ This is a good time for an investment in the
long-term value of the property. See also -
Blend Tax Strategy and Sustainability for Long-
Term CRE Value.
To better understand what employers are considering
when assessing office properties, we identified key
trends and insights on the latest developments
around Returning to the Workplace and the preferences,
views, and beliefs of those using the office. (Also
available on the Gibraltar blog.)
Companies Are Reassessing Space
with a Rent vs Productivity Calculation
leasing unused space. Many companies favoring a hybrid
work schedule may pursue short-term leases for smaller
office spaces to meet flexible workplace demands. Now
with the accounting standard change impacting financial
reporting for lessees, traditional long-term leases may
become even less prevalent. The evolving office rental
landscape may also force landlords to accept more short-
term leases to stay competitive; otherwise, they risk
having to increase rent rates.
For More Information
ASC 842 has brought about significant changes for
private companies and the CRE industry. While some
challenges lie ahead for CRE entities in adopting the new
standard, these challenges can be overcome with careful
planning and execution. To be prepared for how ASC 842
may impact their business, CRE owners and operators
should learn all they can about the new standard’s
accounting changes and its implications for leases.
For assistance with the lease accounting adoption, please
connect with a memberof our complex accounting team.
Related Content
■ FASB Issues New Lease Accounting Guidance for
Lessors
■ 3 Ways Lease Accounting Technology Solutions
Help ASC 842 Adoption

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By the CBIZ National Tax Office
F
or the first time in a while, the end of the calendar
year occurred without a surge of new tax legislation.
Starting 2022 at status quo doesn’t necessarily
make tax planning easier for the year ahead, as Congress
continues negotiating significant tax changes in the
Build Back Better Act (BBBA), which now could involve
retroactive tax measures as of Jan. 1, 2022.
Below, we highlight some of the knowns and unknowns
that may help your business formulate a tax plan for
2022 and navigate potential changes to come.
Capturing Past Tax Benefits
It’s not too late to receive the benefits of 2020’s
Coronavirus Aid, Relief, and Economic Security (CARES)
Act. The legislation suspended for 2018, 2019 and 2020
the Section 461(l) limitation on excess business losses,
which prohibits business loss deductions in excess of
$500,000 for married taxpayers filing joint (MFJ) filers
or $250,000 for single (S) filers. The legislation also
Tax Planning – the Knowns
and the Unknowns
temporarily restored the ability for businesses to carry
back net operating losses (NOLs) incurred in the 2018,
2019 and 2020 tax years, without those losses being
subject to the limitation.
Further, the CARES Act expanded the Section 163(j)
business interest deduction percentage to 50% for the
2019 and 2020 tax years for most taxpayers. If your
business didn’t apply the enhanced percentages to
previously filed tax returns, you can amend those past tax
returns to claim these benefits.
Employee Retention Tax Credit (ERTC)
Taxpayers may also amend quarterly payroll tax returns
for 2020 and 2021 if they qualify but haven’t taken
advantage of the refundable Employee Retention
Tax Credit (ERTC). The provision benefits those who
experienced business disruption because of the
pandemic and helps to offset the cost of keeping
employees through the third quarter of 2021. The ERTC
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is equal to 70% of qualified wages paid after Dec. 31,
2020 and before Sept. 30, 2021, with a maximum 2021
credit per employee of $21,000. To be eligible, your
business must have experienced a 20% decline in gross
receipts during any calendar quarter in 2021 compared
to the same quarter in 2019 or must have been subject
to a full or partial shutdown on account of government
orders. Similar ERTC benefits are also available for
calendar quarters in 2020, with a maximum 2020
credit per employee of $5,000. An ERTC refund analysis
study would help ensure all eligible wages have been
assessed and the credit has been applied correctly.
The Uncertainty That Remains
Provisions remaining in the BBBA contain measures
that could play an important role in your tax planning.
Complicating these planning activities is the open
question about whether the BBBA has the support to
become law and if it will contain retroactive measures
since the bill was not passed in 2021 as originally
intended. The following are the BBBA provisions that
could have the largest impact on 2022 tax strategies.
Delay to the R&D Amortization
The tax reform law known as the Tax Cuts and Jobs Act
(TCJA) requires all research and development (R&D) costs
to be capitalized and amortized starting in 2022. There’s
a provision in the draft BBBA legislation that would delay
the capitalization and amortization requirement until after
2025. Companies may want to prepare for the impact that
the amortization of research and development expenses
will have if the requirement remains in effect for 2022.
Business Interest Expense Limitation Changes
A proposal in the draft BBBA legislation would affect
partnerships and S corporations by moving the
calculation of the Section 163(j) limitation from the
entity level to the individual level, which may significantly
impact the amount of business interest expense that is
ultimately deductible.
Excess Business Loss Limitation Up for
Permanent Extension
There is a proposal that would permanently extend the
excess business loss limitation under Section 461(l)
that was also established by the TCJA. Presently, the
limitation will expire after 2026. The BBBA proposal
would also change the nature of excess business loss
carryforwards so that the carryforwards would continue
to be subject to the $250,000 limitation (for S filers)
or the $500,000 limitation (for MFJ filers) during each
carryforward year. Note that the limitation levels are
indexed for inflation each year.
Taxpayers facing excess business loss limitations
may want to consider strategies that delay business
deductions, such as electing out of bonus depreciation
or electing to capitalize R&D and internally developed
software costs, so that these deductions do not readily
turn into excess business losses.
The Importance of a Holistic Tax Plan
For many tax strategies, timing is key. Considering when
to take deductions and expenses requires a comparison
across calendar years. We recently put together a guide
with insights for 2021 and tax rates for 2021 and 2022
that may help your decision-making. You can view the
guide here.
For questions about how potential tax changes affect your
strategy, connect with a member of our tax team.
Related content
■ The Important Role Appraisals Play in Trust and
Estate Matters During Uncertain Times

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I
nflated building material expenses have caused
construction costs to surge over the past year. Several
factors have influenced these higher costs, including:
■ a global pandemic that forced many
manufacturers to shut down production and
caused a supply shortage
■ historically low interest rates that influenced
property purchasing and drove the demand for
building materials
■ numerous catastrophic loss events (e.g.,
tornadoes, wildfires, flooding, ice storms,
hurricanes) that increased the need for
construction supplies
Higher building material and construction prices will
influence an increase in property insurance claim
expenses. As property repairs/rebuilds cost more, your
current coverage may not be sufficient and leave you
financially vulnerable.
How does construction pricing affect your
insurance?
In response to the construction supply and demand,
many carriers have implemented property rate increases
and total insurable value (TIV) adjustments. Building price
increases could cause you to suffer coinsurance penalties
How Rising Construction Costs
Can Affect Your Insurance
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(Continued from page 6)
for under-reporting/under-insuring your property’s
value. Also, delays in labor and material shortages could
mean interruptions in your repairs/replacements with a
potential loss of income.
As a result, you could discover that your business’ existing
policy limits and coverage no longer offer adequate
protection. In light of these ongoing cost concerns, it is
important for you to be proactive.
Consider taking the following actions:
Review Your Policies
■ Inspect and make sure you fully understand
your property insurance policy. Contact your
insurance broker with any questions or concerns
you may have.
■ Analyze your business owner policy’s limitations
regarding business income and extra expense
insurance.
■ Appraise your current disaster recovery plan.
Make adjustments and apply necessary
contingencies as construction could take much
longer. Include additional backup plans to continue
operations through a longer recovery period.
■ Consult a trusted insurance expert to help you
determine if your policy has sufficient coverage
in the event of a loss. This may require you to
change your policy’s valuation method, increase
your current limits, obtain specialized coverage
or implement a policy endorsement.
■ Inform your insurance carrier whenever you
conduct renovations or implement other
improvements to your property.
■ Review your current policy and contact your risk
management advisor to make sure your business
is covered.
Make Adjustments
■ Remove coinsurance provisions. Request an
agreed value on your property and never accept
a 100% coinsurance as it increases your risk for
an errors & omissions (E&O) claim.
■ Analyze and make adjustments to your business
income and extra expense insurance. This
coverage provides for your income and covered
expenses while your property is repaired.
Recent construction interruptions may require
alterations to your policy.
■ As construction delays could cost you money,
modify any business owner policy limitations
from a 12-month option to a 24-month option.
Communicate
■ Inform your insurance carrier whenever you
conduct renovations or implement other
improvements to your property.
■ Review your current policy and contact your risk
management advisor to make sure your business
is covered.
We’re Here to Help
This rise in construction costs could affect your business.
Your current policy may not provide adequate coverage to
repair/replace in a case of a loss and leave you financially
vulnerable. Connect with a member of our team to learn
how to make sure your business is covered.