Tax conference close to reconciling key pass-through issues for real estate firms: sources

Final bill could allow more real estate owners to benefit than Senate bill proposed

TRD New York /
Dec.December 14, 2017 06:00 PM

The Capitol Building, NYC and Uncle Sam

Members of Congress are inching closer to reconciling key differences for which real estate companies would qualify as “pass-throughs” for tax cuts, sources close to the talks told The Real Deal.

The original House and Senate tax bills differed in which firms organized through pass-throughs, such as LLCs, would qualify for lower tax rates on certain income. The House version was seen as being more favorable to “capital-intensive” real estate firms – think small developers or old-money families sitting on lots of multifamily holdings – while the Senate version would exclude many real estate companies with major assets that contract out the majority of their labor and as a consequence have small payrolls .

But the tax conference is debating what one source described as a potential “hybrid” of the two bills.

While the final bill is likely to favor the Senate language on this issue, the source said, negotiators are looking at options that would allow capital-intensive firms, like many real estate companies are, to qualify for some degree of the pass-through tax cuts.

The House had passed a 25 percent top tax rate for some pass-through income (considered by legislators to be 30 percent of a qualifying company’s total income). Real estate investors would see that as a boon.

The Senate, though, proposed a 23 percent deduction for pass-through income, which would also be restricted to no more than 50 percent of a company’s total payroll – if payrolls are small, as they are for many family-run enterprises, this deduction wouldn’t amount to much.

The new approach discussed, the source said, would allow real estate firms left out in the Senate bill to avail of, at some level, the tax cut-benefits planned for eligible pass-throughs.

How much the final benefit to owner would be exactly, however, is still up in the air.

On Wednesday, news broke that Republicans have agreed to a 20 percent deduction for eligible income.

Earlier this week, the National Association of Realtors said the House language left unclear whether many types of real estate firms, including brokerages, would qualify at all as eligible pass-throughs, prompting some to consider incorporating in order to take advantage of expected rate cuts.

Lawmakers have said the final bill should move to floor to both chambers of Congress for floor votes nest week.


Related Articles

arrow_forward_ios
CBRE CEO Bob Sulentic; the firm has shifted its global HQ from LA to Dallas. (CBRE, Getty)

“Sad day” in LA: CBRE’s corporate exit latest blow to dented office market

“Sad day” in LA: CBRE’s corporate exit latest blow to dented office market
From June through August, sales taxes collected from the city’s accommodation businesses fell $2.2 billion short of the year-ago total. (iStock)

Business at city hotels down a stunning 90%

Business at city hotels down a stunning 90%
Mayor Bill de Blasio and Greenwich Village Society for Historic Preservation's Andrew Berman (Photos via Getty; iStock; Neighbor2Neighbor Greenwich Village)

Move over, artists: Soho rezoning blueprint calls for more apartments, legal retail

Move over, artists: Soho rezoning blueprint calls for more apartments, legal retail
Gov. Phil Murphy (left) and billionaire David Tepper

Does taxing the wealthy really drive them away?

Does taxing the wealthy really drive them away?
City Council member Brad Lander and the Gowanus canal (Getty; City Council)

Gowanus rezoning community support hinges on NYCHA funding

Gowanus rezoning community support hinges on NYCHA funding
Mayor Bill de Blasio and the Lucerne Hotel at  201 West 79th Street (Getty; iStock; Google Maps)

Lawsuit blasts NYC’s “capricious” Covid-19 homeless response

Lawsuit blasts NYC’s “capricious” Covid-19 homeless response
Steve Cohen and Citi Field (Getty)

Citi Field lease clause could stymie billionaire’s quest for the Mets

Citi Field lease clause could stymie billionaire’s quest for the Mets
Paul Singer of Elliott Management (Getty; iStock)

Billionaire Paul Singer’s hedge fund dumps NYC for West Palm Beach

Billionaire Paul Singer’s hedge fund dumps NYC for West Palm Beach
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...