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Tax Law Roundup current law developments in U.S. taxation

Category Archives: Real Estate

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IRS Concludes Upper-Tier Disregarded Entity is Continuation of Historical Partnership

Posted in Joint Venture, Partnership/LLC, Passthrough Entity, Real Estate

The IRS favorably ruled that an internal partnership restructuring was essentially a “nothing” for tax purposes even though the transaction moved the tax-regarded partnership to a different state-law entity.  Specifically, in PLR 201605004, the IRS privately ruled that an upper-tier disregarded entity succeeded to the partnership status of a lower-tier tax partnership when the second… Continue Reading

Senate Passes Extenders Legislation – President Quickly Signs Targeted Tax Cuts Into Law

Posted in Legislative, Real Estate

Today the Senate voted 65-33 to pass the Extenders bill (H.R. 2029) and the President quickly signed it into law with the official Date of Enactment being December 18.  As discussed in more detail in yesterday’s blog, the legislation makes permanent or creates an extended life for many take breaks that have been annually renewed, or “extended” for many… Continue Reading

House Passes Massive Extenders Package – Moves to Senate

Posted in General, Legislative, Real Estate

Today the House passed the much talked about “Extenders” legislation and it now moves to the Senate with momentum.  The bill makes many of the annual extenders permanent (or for a period of multiple years) and covers a wide range of topics.  Below is a list of some of the provisions affecting the real estate industry,… Continue Reading

Tax Incentives for Post-Holiday Facelifts

Posted in Accounting Methods, Real Estate

This week is a big week for the retail industry: its results can predict the overall success of an important shopping period. If stores perform well, this week can contribute significantly toward a successful quarterly earnings report. Given the potential of these few shopping days, retailers are understandably focused on what happens from the time… Continue Reading

IRS Suspends Private Rulings on Many REIT Spin Off Conversions

Posted in Real Estate, REITs

The flurry of Opco-Propco REIT conversions has hit a stumbling block this week when the IRS issued a Revenue Procedure announcing a “no rule” policy for a key corporate tax issue for many REIT spin offs. Basically to do a tax-free REIT spin off, the existing single corporation must be able to qualify the REIT entity… Continue Reading

IRS Allows Developer Tax Benefit of Common Improvement Advance to City

Posted in Accounting Methods, Real Estate

In CCA 201537022, the IRS allowed a real estate developer to capitalize its required “advance” to the city for common infrastructure improvement costs, subject to later year adjustment to the extent the city repaid the funds. In form, the developer initially financed the capital improvements with an advance, but the city’s obligation to repay the… Continue Reading

IRS Ruling Addresses LLC Eligibility for Cancellation of Debt Exception

Posted in Cancellation of Debt Income, Partnership/LLC, Real Estate, Workouts

In new CCA 201525010, the IRS addressed the issue of whether a general “exculpatory” debt of an LLC is recourse or non-recourse for purposes of classifying debt-relief as potential cancellation of debt (COD) income. Recourse treatment means the debt forgiveness creates COD income. Non-recourse means the debt relief is treated as proceeds from the sale… Continue Reading

IRS Treats Rotating Digital Display Income As Good REIT Income

Posted in Real Estate, REITs

In PLR 201522002, the IRS clarified that REITs can earn good rent income from outdoor advertising displays even if multiple tenants rent the same display area for rotating ads. In the ruling, the REIT owned outdoor advertising displays (i.e., billboards) and planned to build new displays with rotating digital displays. The taxpayer planned to make… Continue Reading

The House Joins the Senate Finance Committee in Proposing FIRPTA Reform

Posted in International, Legislative, Real Estate

FIRPTA real estate tax reform continues its momentum with the recent release of bill text for H.R. 2128, the latest House bill introduced by Kevin Brady (R-Texas) and J Crowley (D-NY). In connection with the filing of the bill, Brady stated that H.R. 2128 is similar to the changes approved by the Senate Finance Committee and… Continue Reading

Senate Finance Committee Proposes FIRPTA Reform

Posted in International, Real Estate, REITs

Today was an important step in moving forward US tax reforms to encourage international investment in U.S. real estate.  The Senate Finance Committee passed 17 different tax bills for consideration by the entire Senate.  This package includes a FIRPTA reform bill sponsored by Senators Robert Menendez (D-NJ) and Michael Enzi (R-WY) to reduce the burden… Continue Reading

Tax Court Denies Capital Gain Treatment to Real Estate Sellers

Posted in Capital Gain, Real Estate

In Si Boo LLC, the Tax Court denied capital gain treatment and assessed self-employment taxes on three taxpayers who regularly sold real properties acquired by tax deed.  The court held that, although the taxpayers bought the tax liens primary to profit from redemptions of the liens, the repeated sales of properties forfeited to them as… Continue Reading

11th Circuit Holds Real Estate Developer Recognized Capital Gain on Sale of Contract Right

Posted in Real Estate

In reversing the Tax Court, the 11th Circuit in Long v. Comm’r allowed a real estate developer favorable capital gain treatment upon the sale of its rights to a land purchase contract for a condominium development, even though sale of the condo units themselves would have been ordinary income. Facts The taxpayer originally had a… Continue Reading

At Long Lasts, Proposed Regulations Modernize Partnership “Hot Asset” Rules

Posted in Joint Venture, Partnership/LLC, Real Estate

The IRS published taxpayer-favorable proposed regulations to help minimize unnecessary tax under the Section 751(b) “hot asset” rules when a partnership makes a disproportionate distribution.  The hot asset rules are designed to prevent a shifting of higher-tax ordinary income gain assets between partners.  Thus if a partnership has a mix of capital gain and ordinary… Continue Reading

Taxpayer Failed Requisite Profit Motive When Investing In Partnership Solely for Charitable Deductions

Posted in Deductions, Partnership/LLC, Real Estate, Tax Shelters

In McElroy v. Commissioner, the Tax Court concluded that the taxpayer failed the requisite profit motive to receive a tax deduction from an investment in a charitable syndication partnership.  The case involves an attempted syndication of charitable deductions by placing real estate into a partnership, soliciting investors with promised charitable deductions well in excess of… Continue Reading

Internet Sales Tax Update: Senate Introduces Marketplace and Internet Tax Fairness Act

Posted in Real Estate, Sales Tax

Last night, Senators Enzi, Durbin, Alexander, Heitkamp, Collins and Pryor introduced the Marketplace and Internet Tax Fairness Act (MITFA).  Essentially, the legislation combines the previously introduced Marketplace Fairness Act (with several technical changes) and a 10-year extension of the Internet Tax Freedom Act, which provides a moratorium on state and local taxation on internet access. … Continue Reading

Tax Court Denies Residential Land Developer Use of Homebuilder Tax Deferral Rule

Posted in Real Estate

Under the Completed Contract method of accounting, homebuilders are allowed to defer taxable income until 95% of the costs of the home development are incurred.  On June 2, the Tax Court concluded in Howard Hughes that a residential land developer was not eligible for this generous tax rule because they did not actually build homes. … Continue Reading

Proposed Regulations Update Definition of Real Property for REITs

Posted in Real Estate, REITs

The IRS issued new proposed regulations for the definition of real property for REIT purposes, updating the original 1962 regulations.  The proposed regulations come in the wake of news reports criticizing the IRS for allowing too many taxpayers to convert to REIT status and a temporary moratorium (since lifted) on private letter rulings regarding the… Continue Reading

Rep. Camp Tax Reform – Top 10 Real Estate Considerations

Posted in General, Partnership/LLC, Passthrough Entity, Real Estate, REITs, Tax reform

Last week Rep. Camp (R-MI), Chair of the House Ways and Means Committee, announced a comprehensive tax reform discussion draft as part of his efforts to reduce top corporate tax rates to 25% and provide individual brackets at 10%, 25%, and for many, 35% (after adding a 10% surtax for non-domestic production income of high-income… Continue Reading

Tax Court Rules for Homebuilder in Completed Contract Income Deferral

Posted in Real Estate

Under the Completed Contract method of accounting, homebuilders are allowed to defer taxable income until 95% of the costs of the home development are incurred.  Taxpayers have traditionally treated the “development” for this purpose as including the common areas and amenities, effectively deferring income recognition because it takes longer to reach the 95% threshold.  The… Continue Reading

New Simplified Financial Accounting for Low-Income Housing Tax Credit Projects

Posted in General, Real Estate, Tax Credits

The Financial Accounting Standards Board (FASB) has announced new simplified financial accounting rules for qualified investors in Low-Income Housing Tax Credit (LIHTC) projects. The rule change will make it easier for investors to opt out of the Equity Method of accounting for LIHTC investments and instead use the new Proportional Amortization Method. The main benefit… Continue Reading

IRS Clarifies Mezzanine Real Estate Loan Structure Qualifies for COD Exception

Posted in Cancellation of Debt Income, General, Partnership/LLC, Real Estate

New Rev. Proc. 2014-20 allows “mezzanine” real estate loans to qualify for the Section 108(c) cancellation of debt (COD) income exception.  When a lender forgives debt associated with a qualifying real estate loan, the borrower can avoid tax on the COD income by instead electing to reduce tax basis if the loan is “secured by”… Continue Reading

Partnership Tax Planning Severely Limited By Proposed Regulations

Posted in Joint Venture, Partnership/LLC, Real Estate

New proposed IRS partnership regulations, when finalized, promise to shut down taxpayer flexibility under debt allocation and “disguised sale” rules.  The substantive restrictions and related “clean up” rules are numerous and detailed.  Two of the most significant changes are (1) restrictions that effectively deny tax-motivated debt guarantees (e.g., no “bottom guarantees”) and (2) a safe… Continue Reading

IRS Issues Historic Rehabilitation Credit Safe Harbor

Posted in General, Joint Venture, Partnership/LLC, Real Estate, Tax Credits

After much anticipation, the IRS issued Rev. Proc. 2014-12, a Safe Harbor for when an investor in an historic rehabilitation credit partnership will be respected as a partner for tax purposes.  Such partner status is essential to allocating rehabilitation credits to the investor and the guidance is a direct result of the 2012 Historic Boardwalk… Continue Reading

IRS Cleans Up Partnership Recourse Debt Allocation Regulations

Posted in Joint Venture, Partnership/LLC, Passthrough Entity, Real Estate

The IRS issued proposed partnership recourse debt allocation regulations to address issues long unaddressed by current guidance.  How debt is allocated among partners is critical in determining whether a partner has sufficient basis to report a tax deduction or avoid gain upon a partnership distribution of cash.  For this purposes a “recourse” liability is one that… Continue Reading