Discussion:DPAD - construction activities

2. Also, what would constitute "substantial renovation" of real property to qualify for DPAD? Would oontractors remodeling homes (installing carpets, hardwood floors, windows, and applicances) qualify?

Thanks!

2) NO, the individual contractors will not qualify UNLESS they are a component of a substantial renovation - for example, the tile contractor putting in a new kitchen floor will not qualify unless the homeowner is totally renovating her kitchen (maybe a $40,000 renovation - not a $2,000 renovation) that materially increases the value of her home. Appliances may be part of the renovation, but by themselves wouldn't qualify.

The businesses (with employees) I have that might qualify are:

1.) Computer Graphics Design - Designs graphics for paper products and pays other companies for the printing of the final products.

2.) Concrete construction - Pours concrete floors and walls

3.) Homebuilder - Builds new houses and hires sub-contractors for portions of the construction

4.) Embroidery Design - Sews the designs onto purchased items (shirts, etc).

Kevin - After reading the instructions for Form 8903 and all of the DPAD discussions here, including what you wrote above today, I'll guess that #2 and #3 above would qualify. Your help would really be appreciated. (I hate having to ask for help, believe me.) Thanks!

4 I think qualifies because it is QPP, but you might have to look at whether it is IWSP (Reg §1.199-3(g)) and "substantial in nature" as defined in §1.199-3(g)(2) based on the facts and circumstances OR, meets the safe harbor of §1.199(g)(3) (taxpayer's conversion costs account for at least 20% of the COGS of the property).

1 - I don't know how it meets the MPGE definition. I am doubtful of this one.

Got MPGE - Manufacturing, producing, growing, or extracting.

Thanks again!

I just emailed the graphics design client, asking if they print any of their products. I realized that designs are intangible property, so I guess it depends on if they print some of the products they sell.

I've just amended the 2005 embroidery client's return for a refund of $51. It's only $2 extra refund for 2006, so I may not reprint her return to include the 8903. I'm currently waiting for the signed 8879 for that one.

I haven't done the concrete and homebuilder's returns yet, but will amend their 2005 returns and include 8903 on their 2006 returns.

I found a very good document on the web that I read this morning. It's here.

Thanks again for your help!

You will have to apply some common sense and not let the taxpayer get greedy. The taxpayer should set up his books to track the things that will count separate from the things that don't count, including COGS and wages for the jobs that do count.

He has a s Corp. On the 8903 calculation to get to the QPAI, do I need to reduce it by section 179 expense shown on page 3 of the Schedule K on the 1120S. Thinking I would since it would lower the 6% calculation and produce a lower number.

Does any one know this?

Yes it is there.

substantial renovations: from Notice 2005-14

TexCPA 14:29, 24 February 2009 (CST)

1. A sole proprietor owns a Monument Company. There are no employees. The Monument Company owner buys various parts and assembles already carved & lettered granite monument pieces (example: Dies, Bases, Vases, Benches, Planters, etc), and then Assembles and Installs the various parts into one finished product at various cemeteries. The monuments he assembles are erected onto a steel reinforced concrete foundation that the owner constructs on site prior to the monument assembly. 2. The same monument company owner sells and pours various steel reinforced foundation types and concrete curbing, sometimes using other types of granite pieces he assembles together with concrete under-lament.

As mentioned earlier, the Monument Company Owner performs all the labor himself, and does not pay labor costs. Since he produces a finished product from parts and manufactures concrete foundations keeping record of COGS with substantial profit because he does the work himself, does he qualify for the DPAD?

If possible, please give examples on how he should enter items into quickbooks or what he can do to qualify. Thanks!

I would say that if the client has a payroll, creates a product in the US and carries an inventory, unless the activity is specifically excepted (such as restaurants, pornography, etc) then there is a very good chance the client is eligible for the DAPD.