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TAXATION OF REAL ESTATE                                                                       Roger Royse                 ...
TOPICS• Sales and Exchanges• Non-Recognition Transactions• Deductions• Leases• Financing• Distressed Property• FIRPTA• Tax...
SALES AND EXCHANGES• Gain = Amount Realized - Adjusted Basis    - A/R = cash and FMV property received and liability relie...
NON-RECOGNITION• Like Kind Exchanges (1031 Transactions)        -    Trading Up and the effect of boot        -    Like ki...
1031 DEFERRED EXCHANGE           Relinquished                            Replacement           Property                   ...
DEDUCTIONS AND CREDITS•   Depreciation      -   Trade or business and for-profit activity      -   ACRS/MACRS      -   Cos...
PASSIVE ACTIVITY AND AT RISK                  LIMITATIONS•   At Risk      -   Deductible losses limited to amounts “at ris...
LEASES• Rents and Rent substitutes• Section 467 Leases• Leasehold Improvements• Lease acquisition costs                   ...
FINANCING• Mortgage financing    - Mortgage acquisition costs    - Points• Option transactions• Synthetic Leases• Sale Lea...
DISTRESSED PROPERTY• COD Income• Recourse and Non-Recourse Debt• Qualified real property business indebtedness• Other Exce...
FOREIGN OWNERSHIP• Withholding Taxes on Rents• Effectively Connected Income• FIRPTA    - Federal and State Tax Withholding...
INFORMATION REPORTING• Real Estate Broker Reporting• FIRPTA Reporting• Mortgage Interest Reporting• Recipients of Real Est...
SYNDICATED TIC INVESTMENT      Taxpayer         Taxpayer                  Taxpayer          Taxpayer             100%     ...
DELAWARE STATUTORY TRUSTTaxpayer   Taxpayer            Taxpayer   Taxpayer                                             Ben...
AMERICAN TAXPAYER RELIEF ACT OF 2012  • For individuals with taxable income over the $400,000 single/$450,000    joint:   ...
ESTATE PLANNING• Partnerships• Pooled investment vehicles• IRAs• Syndicated 1031 Exchange Funds• Family Partnerships and L...
PALO ALTO              LOS ANGELES              SAN FRANCISCO1717 Embarcadero Road   1150 Santa Monica Blvd.       135 Mai...
Taxation of Real Estate
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Taxation of Real Estate

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Taxation of Real Estate

  1. 1. TAXATION OF REAL ESTATE Roger Royse Royse Law Firm, PC 1717 Embarcadero Road Palo Alto, CA 94303 Phone: (650) 813-9700 E-mail: rroyse@rroyselaw.com www.rroyselaw.com www.rogerroyse.com Twitter: Rroyse00 CREOBA Skype: roger.royse Weekly WebinarIRS Circular 230 Disclosure: To ensure compliance with the requirements imposed by the IRS, we inform you that any tax advice contained in this communication,including any attachment to this communication, is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding penaltiesunder the Internal Revenue Code or (2) promoting, marketing or recommending to any other person any transaction or matter addressed herein.
  2. 2. TOPICS• Sales and Exchanges• Non-Recognition Transactions• Deductions• Leases• Financing• Distressed Property• FIRPTA• Tax and Estate Planning 2
  3. 3. SALES AND EXCHANGES• Gain = Amount Realized - Adjusted Basis - A/R = cash and FMV property received and liability relieved - A/B = acquisition costs +/- adjustments - Realization/Recognition• Character: Capital or Ordinary - Capital assets and section 1231 assets - Inventory - Section 1237 safe harbor - Depreciation Recapture 3
  4. 4. NON-RECOGNITION• Like Kind Exchanges (1031 Transactions) - Trading Up and the effect of boot - Like kind property held for productive use in a trade or business - Related parties - Deferred Exchanges• Involuntary Conversions (1033) - Destruction, theft, seizure, condemnation - Qualifying replacement purchase during replacement period 4
  5. 5. 1031 DEFERRED EXCHANGE Relinquished Replacement Property Property QualifiedTaxpayer Intermediary Replacement $$ Property Relinquished $$ Property Third Parties 5
  6. 6. DEDUCTIONS AND CREDITS• Depreciation - Trade or business and for-profit activity - ACRS/MACRS - Cost Segregation Study - ATRA 2012 extension of 15 Yr Depreciation - 50% Bonus Depreciation - Section 179 expense of up to $250,000 of Qualified Real Property• Credits - Investment Credit (Rehabilitation and Reforestation) - Low Income Housing - Disabled Access Credit - New Markets Credit - Empowerment Zones Credit 6
  7. 7. PASSIVE ACTIVITY AND AT RISK LIMITATIONS• At Risk - Deductible losses limited to amounts “at risk” - Taxpayer’s share of qualified nonrecourse financing• Passive activity losses limited to passive activity income - Individuals, estates, trusts, closely held C corps, and personal holding companies - Passive activity is trade or business in which taxpayer does not materially participate - Material participation = regular, continuous and substantial participation - Rental is passive unless real property business exception applies - Rental Real Estate Active Participation 7 7
  8. 8. LEASES• Rents and Rent substitutes• Section 467 Leases• Leasehold Improvements• Lease acquisition costs 8
  9. 9. FINANCING• Mortgage financing - Mortgage acquisition costs - Points• Option transactions• Synthetic Leases• Sale Leaseback - Sale vs. financing device - Tax exempt organizations 9
  10. 10. DISTRESSED PROPERTY• COD Income• Recourse and Non-Recourse Debt• Qualified real property business indebtedness• Other Exceptions and Exclusions to COD 10
  11. 11. FOREIGN OWNERSHIP• Withholding Taxes on Rents• Effectively Connected Income• FIRPTA - Federal and State Tax Withholding on Dispositions of USRPI by Foreigners - US Real Property Holding Corporations 11
  12. 12. INFORMATION REPORTING• Real Estate Broker Reporting• FIRPTA Reporting• Mortgage Interest Reporting• Recipients of Real Estate Rental Income (repealed)• FBAR/FATCA 12
  13. 13. SYNDICATED TIC INVESTMENT Taxpayer Taxpayer Taxpayer Taxpayer 100% 100% 100% 100% Single Single Single Single Member Member Member Member LLC LLC LLC LLC TIC Interests Replacement PropertyCo-Ownership or TIC Agreement 13
  14. 14. DELAWARE STATUTORY TRUSTTaxpayer Taxpayer Taxpayer Taxpayer Beneficial Interests Delaware Statutory Trust Replacement Property 14
  15. 15. AMERICAN TAXPAYER RELIEF ACT OF 2012 • For individuals with taxable income over the $400,000 single/$450,000 joint: - top marginal tax rate of 39.6% - top marginal tax rate on long-term capital gains of 20% - top marginal tax rate on dividends of 20% • Phase-out of tax deductions and credits for incomes over $250,000 for individuals and $300,000 for couples • Estate and gift taxes at 40% of the value transferred in excess of $5,250,000, indexed for inflation • Alternative Minimum Tax indexed to inflation • Two-year old cut to payroll taxes not extended - rate is 6.2% 15
  16. 16. ESTATE PLANNING• Partnerships• Pooled investment vehicles• IRAs• Syndicated 1031 Exchange Funds• Family Partnerships and LLCs• Developer Investor Structures 16
  17. 17. PALO ALTO LOS ANGELES SAN FRANCISCO1717 Embarcadero Road 1150 Santa Monica Blvd. 135 Main Street Palo Alto, CA 94303 Suite 1200 12th Floor Los Angeles, CA 90025 San Francisco, CA 94105 www.rroyselaw.com 18

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