#MALODY DEFINITION CODE#

We recommend asking for the amount of deferred gain being invested and the date that underlying gain was generated, maybe even in the subscription agreements. We had to solicit several pieces of information from QOZF investors that we otherwise never needed and create some K-1 disclosures we never had to provide for QOZBs. Qualified Opportunity Zone Funds and Qualified Opportunity Zone Businesses.The preferred method of QOZF investments has been indirectly in QOZBs rather than direct purchases. Real estate professionals should consider the mismatch pitfall in this rule in any projects with large amounts of self-charged interest (interest income at the individual level, business interest expense at the entity level). The new excess business loss rules under IRC Section 461(l) limit business losses to $500,000 for married filing joint taxpayers ($250,000 for single). Taking positions on these uncertain items included looking more closely at IRC Section 179 or repair regulation applications for QIP and the overall tax position of our clients potentially subject to IRC Section 1060 and the impact of a short-term capital gain redetermination.Įxcess business loss limitation. In past years, real estate professionals were not limited in using net rental real estate losses to offset portfolio income or, perhaps, a spouse’s W-2. Uncertainty of the recovery period for qualified improvement property and sales of assets with promoted interests held for less than three years. Not including qualified improvement property in the bonus depreciation and the wording gap in the new carried interest rules under IRC Section 1061, which seemingly does not include IRC Section 1231 gains, were the most puzzling technical gaps that remained without definitive direction this season.

We found management fees following the economics of these deals to a related S corporation management company with wages may be a means of solving the wage and basis shortfalls, while also having substance. The Treasury has not stated explicitly, but, in its regulation examples, indicated residential and commercial properties cannot be aggregated for these purposes, which most specifically poses a challenge for commercial properties since wages are less likely associated with these operations.

In addition to qualifying the income, an appropriate level of wages or unadjusted basis (which may be a challenge for mature property investments) needs to accompany that income either directly from the partnership or in aggregation with other investments that qualify to take the deduction. In order to qualify for this deduction, NNN investors may want to consider taking on an expanded role at the properties, which can be done by an agent, and build that planning into the lease administration process. The new 20% Qualified Business Income deduction.The Treasury has explicitly targeted triplenet real estate investments in its guidance, warning that these investments may not meet the level of property owner activity to rise to the level of a trade or business and do not generate qualified business income. The downside of the election was that we had to adopt a 40-year recovery period on commercial real estate and qualified improvement property assets, and 30-year recovery period on residential real property (40 years for those placed in service prior to 2018), which reduced tax depreciation.

In the clear majority of these cases, after sensitivity analysis, it was cost beneficial to elect the qualifying real property trades or business exception under IRC Section 163(j)(7)(B). Interest expense limitations on leveraged real estate syndicated partnerships.It was more the rule than the exception that syndicated real estate partnerships fell into the expanded definition of tax shelters (allocation of more than 35% of losses to limited partners) and were subject to the new interest expense limitations under IRC Section 163(j). I have outlined eight specific real estate income tax reform issues we addressed this busy season that may require special attention to take advantage of some opportunities and avoid some pitfalls.

#MALODY DEFINITION CODE#

The first year administering any sweeping tax reform with hundreds of pages of new code and thousands of pages of associated guidance is never easy, nor without the devil in the details.

Malody definition