The maze of real estate rentals
A real estate professional has the opportunity to have the activity treated as nonpassive if he or she materially participates in the rental real estate activity. 5 A real estate professional is one who spends more than one-half of her personal services performed in all trades or businesses during the year in real property trades or businesses
Actived: 5 days ago
Is the Sale of Real Property Ordinary Income or Capital Gain
(6 days ago) Determining whether a real estate sale produces ordinary income or capital gain is difficult and is potentially an issue that can cause a taxpayer to be liable for significantly higher taxes. Unfortunately, as this case demonstrates, there is no bright-line test.
Like-kind exchanges of real property: New final regs.
(6 days ago) Although real estate was by far the most common property involved in like-kind exchanges, real estate transactions that include more than just raw land almost always involve some amount of personal property. Even under the old rules, Sec. 1031 did not consider real property and personal property to be of "like kind" to one another.
A Tax Strategy for Real Estate Sales
(5 days ago) The U.S. real estate market has always attracted the attention of investors and developers worldwide and even more so recently because of a number of factors including increased financing channels (such as crowdfunding), more opportunities for foreign investors through special programs (such as the EB-5 program), and instability in emerging foreign …
Real Estate Professionals: Do Their Rentals Qualify for
Depreciation and Changes in Use of Real Property
(6 days ago) In the case of residential rental property and nonresidential real property, Sec. 168(b)(3) states that the applicable depreciation method is the straight-line method. Sec. 168(c) states that the applicable recovery period is 27.5 years for residential rental property and 39 years for nonresidential real property.
Relief for Late Election to Treat All Real Estate Rental
(6 days ago) The rules and regulations relating to real estate professionals and their ability to treat their real estate activities as nonpassive is a tool that can benefit taxpayers, but it is the responsibility of the real estate professionals to abide by the countless …
Gifting of a Remainder Interest in a Home
(5 days ago) Gifting a remainder interest requires the property ownership to be divided into two separate interests: a life estate and a remainder interest. A life estate gives the holder the power to retain ownership until death. If the taxpayer is married, the life estate can be structured to last until the second spouse’s death.
Current developments in individual taxation
(1 days ago) The taxpayer was a real estate development partnership (organized as a limited liability company) that was formed to develop residential condominiums. When the partnership failed to reach its development goals and converted the remaining condominiums into rental units, it had cancellation - of - debt income.
Reporting Dilemma: Personal Use of Rental Properties
(Just Now) W hen the IRS issued the latest version of Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation, in December 2010, it added three new columns to the revised form, one to enter a code for the type of property being rented and two columns of significance for both practitioners and taxpayers: fair rental days and personal use days.
Defeasance and Its Impact on Real Estate Transactions
(9 days ago) For example, in a taxable sale of real estate, a transaction with a currently deductible defeasance expense will reduce income or increase loss generated from the sale of the property. However, the after-tax effect of transactions can be more complicated in a Sec. 1031 like-kind exchange.
Timing a Loss Deduction
(6 days ago) Many small real estate ventures are structured so that one partner provides the capital and the second partner provides operational experience. As illustrated in the example below, a key question that may arise in such an arrangement is how to treat the loss incurred by the “capital” partner in the event of operational failure and a
Sale of improved land: Capital or ordinary gain
(1 days ago) No other real estate was held for sale to customers in the year of sale; No substantial improvements have been made on the tract that materially increased the value of the lot sold; and The property must have been owned by the taxpayer for five years, unless the taxpayer inherited it.
Navigating the Real Estate Professional Rules
(2 days ago) A qualifying real estate professional who intends to aggregate all rental activities must make a formal election; merely aggregating all of the taxpayer's rental activities into one column on Schedule E, Supplemental Income and Loss, of Form 1040, U.S. Individual Income Tax Return, does not satisfy this requirement. 51 A qualifying real estate
New Sec. 163(j): Considerations for real estate and
(7 days ago) "Real property management" is defined as the handling, by a professional manager, of the day-to-day operations of a trade or business relating to the maintenance and occupancy of real property that affect the availability and functionality of the property used, or held out for use, to customers paying primarily for the use of the property.
Commercial real estate: Debt restructuring and planning
(1 days ago) The other common COD exclusion provision for real estate companies is an indebtedness discharge related to qualified real property business indebtedness. The term "qualified real property business indebtedness" is defined in Sec. 108(c)(3). To meet the definition, the indebtedness must be connected with real property used in a trade or business
Grouping Activities Under Sec. 469
(Just Now) Grouping Activities Under Sec. 469. Generally, a taxpayer may group one or more trade, business, or rental activities as one activity if the activities represent an appropriate economic unit in determining gain or loss for Sec. 469 purposes. Determining whether activities make up an appropriate economic unit depends on all the pertinent facts
Real Estate Professionals: Avoiding the Passive Activity
(8 days ago) Qualifying as real estate professionals allows taxpayers to avoid having their rental real estate activities treated as per se passive. This article discusses the requirements for qualifying as a real estate professional and how the requirements have been interpreted by the IRS and the courts.
Debt workouts involving commercial real estate
(7 days ago) Many real estate assets are held through partnership entities, which are not eligible to take advantage of the Sec. 108 provisions. Currently, in situations where a complex flowthrough structure is in place, the debtor must look through multiple layers of partnerships to get to the individual level where insolvency is tested.
IRS Provides Guidance on Interplay of Rental Real Estate
(4 days ago) Real Estate. The IRS Office of Chief Counsel in Chief Counsel Advice (CCA) 201427016 on July 3 advised on the interaction of the rental real estate grouping election under Regs. Sec. 1.469-9(g) and the real estate professional exception to the …
FIRPTA Rules Impact U.S. Real Estate Transactions
(4 days ago) Real Estate. The Association of Foreign Investors in Real Estate released the group's 22nd annual survey in early 2014, indicating that the United States remained the most stable and secure country for foreign investment in real estate by more than 50 percentage points over the second most stable and secure country, Germany, the widest margin since 2006.
Tax Planning for Troubled Debt
(7 days ago) With foreclosures and significant loan modifications the order of the day, real estate owners, investors, and their tax advisers need to be aware of the COD rules and plan carefully for the tax implications of these transactions. The American Recovery and Reinvestment Act, P.L. 111-5, allows certain taxpayers who realize income from COD in 2009
The Valuation of FLPs
(9 days ago) Real estate: Very often an FLP will hold one or more pieces of real property. These might range from the family home to vacation property (which is not recommended), vacant land, a farm, or some income-producing real property such as apartments, retail, or office space. The analyst should review these assets carefully in order to determine the
Maximizing the QBI deduction with UBIA property
(4 days ago) Therefore, it is important to understand the components behind these two QBI deduction limitations, particularly the UBIA of qualified property. This will be especially important for high-income taxpayers who own nonspecified service businesses that pay little or no Form W-2 wages, such as some rental real estate businesses.
Cooperative Owner Cannot Deduct Cooperative’s Casualty Loss
(4 days ago) Regarding Alphonso’s alternative argument, the Tax Court stated that the general rule that a stockholder cannot deduct the expenses of a corporation applies to stockholders in a cooperative housing corporation, and Sec. 216(a) expressly provides an exception to this general rule only for real estate taxes and mortgage interest.
New Sec. 1411 Brings Difficulty Defining Real Estate
(4 days ago) Real Estate. Effective for tax years beginning after Dec. 31, 2012, Sec. 1411 imposes an additional 3.8% tax on “net investment income” of individuals, trusts, and estates. The tax is imposed on the lesser of the net investment income amount or the excess of the taxpayer’s modified adjusted gross income (MAGI) over a “threshold amount.”.
Commercial real estate: Landlords can turn to Sec. 467
(1 days ago) The statutory period for nonresidential real estate is 19 years. If the constant rental accrual is required to be calculated, the constant rental amount is equal to the net present value of amounts payable under the disqualified leaseback or long-term agreement divided by the present value of $1 to be received at the end of each rental period
Guide to expensing HVAC costs
(6 days ago) Compared to the alternative of depreciating the costs over a 27.5-year life for residential rental real estate or a 39-year life for commercial real estate, an incorrect conclusion may lead to a significant overpayment of current tax liability.
Basis for “Bad Boys”
(9 days ago) The IRS has noted that including "bad boy" provisions in loan agreements is a common practice to protect the lender in the commercial real estate finance industry. (Bad boy provisions typically provide that liability for a nonrecourse loan will become recourse if the borrower engages in any of a number of "bad" acts, such as declaring bankruptcy.)
T.C. Memo. 2021-26 UNITED STATES TAX COURT DUANE …
(6 days ago) and then some other real estate in Florida and Mississippi. He kept these - 4 - [*4] businesses open and their employees working, and he thereby helped the very small economies in very sparsely populated communities. By the time he got to the years before us, he’d invested in …
Disposing of passive activities
(9 days ago) Example 4: ABC Corp. is a closely held, calendar-year C corporation that conducts business activities and rental real estate activities. The corporation is carrying forward $40,000 of suspended passive activity losses from the rentals when it …
Important Lessons Regarding Valuation Issues
(6 days ago) Estates, Trusts & Gifts. On April 28, 2011, the Tax Court held in Estate of Mitchell, T.C. Memo 2011-94, that an estate properly valued both real estate and artwork.The IRS had previously examined the estate’s federal estate tax return and claimed that the estate underreported the fair market values (FMVs) of paintings and interests in several real properties.
A walk through the step-transaction doctrine
(6 days ago) This article discusses the step-transaction doctrine, the three tests used to determine if it applies, and advice for taxpayers to help avoid an IRS challenge of the tax treatment of a series of transactions based on the doctrine.
Restructuring foreign investment in U.S. real property
(Just Now) Estate tax exemption. The U.S. estate tax exempts foreign owners from tax only on the first $60,000 of U.S.- situs assets. The estate of a foreign owner with a direct interest in U.S. property will be subject to tax on the value of U.S.- situs property exceeding $60,000. The rates increase from 18% to 40% of the value over $1 million.
IRS issues guidance on REITs’ treatment of certain foreign
(1 days ago) In Rev. Proc. 2018-48, the IRS has determined, under its Sec. 856(c)(5)(J)(ii) authority, that the Subpart F inclusions, passive foreign investment company (PFIC) inclusions, and global intangible low-taxed income (GILTI) inclusions attributable to investment by a real estate investment trust (REIT) in foreign corporations constitute qualifying income for …
Texas Comptroller Provides Rules on the Texas Franchise Tax
(2 days ago) Real estate entities should be passive entities as long as the sale of real estate results in a capital gain. Note that entities receiving real estate rental income should also be partnerships in case the real estate is sold for a capital gain. If a rental property is sold, it should be sold in the beginning of the year in order for the rental
Back to the Basics: Common Gift Tax Return Mistakes
(7 days ago) The annual exclusion is available only for gifts of present interests in property. 1 An outright gift to an individual of property such as cash, marketable securities, real estate, and tangible personal property qualifies as a gift of a present interest.
Violating Certain “Bad Boy” Guarantees Can Trigger
(2 days ago) The bad-boy guarantee is a typical arrangement in real estate loans. When a borrower takes a nonrecourse loan to purchase real estate, the lender can foreclose only on the real estate; it cannot go after the borrower. To reduce risk for the lender, these arrangements often contain a bad-boy guarantee.
Choosing which tax return to file when married taxpayers
(6 days ago) Fortunately, real estate investments have their own exception to filing partnership tax returns when directly owned by multiple parties. Tenancy-in-common interests may be separately reported by each individual owner, on Schedule E, without filing a partnership tax return, for each owner's respective share of income and expenses.
T.C. Memo. 2021-17 UNITED STATES TAX COURT ESTATE OF
(3 days ago) WRW’s other real estate holding was Brookhurst Town Center, which consisted of land improved by a retail shopping center. In 1986, Miriam and Thomas Warne entered into a ground lease for Brookhurst Town Center as landlords. At all relevant times, Brookhurst Town Center, LLC (BTC LLC), was the tenant of Brookhurst Town Center.
Final regulations on Sec. 199A issued
(4 days ago) The deduction is generally equal to the lesser of 20% of the taxpayer's QBI plus 20% of the taxpayer's qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income, or 20% of taxable income minus net capital gains. Deductions for taxpayers above the $157,500/$315,000 thresholds may be limited
Expatriation and the New Mark-to-Market Rules
(1 days ago) Covered expatriates owning real estate located in the United States are at a disadvantage under Sec. 877A versus 877. Under Sec. 897 (enacted as part of the Foreign Investment in Real Property Tax Act of 198045), the United States taxes foreign persons on dispositions of U.S. real property interests.
Revocable trusts and the grantor’s death: Planning and
(7 days ago) If Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is required, the assets held in the revocable trust should be aggregated and reported on Schedule G, Transfers During Decedent's Life, rather than listed separately (e.g., stocks and bonds, real estate, mortgages, notes, cash, etc.). Additionally, the Part 4
Loans between members and LLCs
(9 days ago) The LLC borrowed $50,000 from J at the beginning of the year and used the money in its rental real estate operations. The loan bears simple interest at a rate of 10%. G did not lend any money to A. In this situation, J loaned more than his share to the LLC.
T.C. Memo. 2021-104 UNITED STATES TAX COURT ESTATE OF
(5 days ago) Mr. Morgan was a residential real estate developer. He earned an M.B.A. degree in 1969 and then worked in the real estate industry for other firms for over a decade. In 1983 he began his own home building company, which came to comprise a variety of entities, including: C.P. Morgan Communities, L.P.