Real estate investment trusts (REITs) have long been tax-favored vehicles for promoting investment in real estate. They can escape entity-level taxation as long as 90% or more of its income is paid to the shareholders. There has been a growing trend of companies seeking REIT status that, in the past, did not fall cleanly within the traditional REIT model. In our previous blog, Why Every REIT Should Know About Taxable REIT Subsidiaries, we laid out the basic principles of REIT taxation. Here we will summarize those basics and highlight several rulings and developments in the area that have recently made REIT status more widely available.
Tax Warrior Chronicles
Wirth v. Commonwealth of Pennsylvania
Life is full of changes. Big changes. Selling one’s home certainly qualifies as one. For many it is among the largest financial transactions they will ever make, and one of biggest assets they will ever own. There are often life transitions, such as marriage, divorce, loss of spouse, or career change that may cause one to sell a home. And, understandably, because of these layered issues, taxes usually are not at the forefront of thought. The Tax Warriors® would like to share some helpful facts that you should know if you sell your home.
The Howard Hughes Company, LLC, et al. v. Commissioner, (2014) 142 TC No. 20
In consolidated cases, the Tax Court has concluded that taxpayers incorrectly characterized ordinary partnership income from the sale of real estate as long-term capital gain. It was determined the properties were held by their partnership primarily for sale to customers in the ordinary course of business and not for investment.
Even in the throes of tax season, the IRS is busy issuing new rules that affect your 2013 filing. It has recently issued final regulations that make it more difficult, if you receive property in connection with the performance of services, to defer tax on the value of the property you receive. The new regulations, which affect certain performance based compensation including restricted stock, clarify and tighten certain rules relating to whether your rights to such property are subject to a substantial risk of forfeiture. The final regulations adopt the previously proposed regulations with some modifications and apply to property transferred after December 31, 2012.
The Tax Court recently issued TC Memo 2013-157, in which it held that a leasehold interest in real property improved by a motel, with a remaining term of 21 years and 4 months, was not like-kind to two real property fee interests, one containing a motel and the other an office building, for which the leasehold was exchanged. The Court also rejected the taxpayer's alternative argument that the motel improvement to the transferred leased property was like-kind to the fee interests in the exchanged properties. Therefore, all realized gain on the exchanges had to be recognized.
Joint Committee on Taxation Report Gives Us Clues
Despite considerable changes to the tax code over the last six months, Congress is still brainstorming and discussing even more tweaks and changes. The Joint Committee on Taxation’s May 6th release of the Report to the House Committee on Ways and Means on Present Law and Suggestions for Reform Submitted to the Tax Reform Working Groups gives a glimpse at suggestions for reform submitted to the eleven working groups created by the Ways and Means Committee to review current laws, research relevant issues, and compile feedback from various sources regarding their designated areas. We will examine the reports summary of suggestions received by the Working Group on one of the most expansive