Here are some issues in the tax law that remain foggy

It's unclear how deductions will apply to pass-through entities

New York /
Feb.February 06, 2018 05:10 PM

Amy Rosenthal and Robert Klein

In many ways, the new federal tax law is a major boon to the real estate industry. But several issues — including some surrounding the deep deductions awarded to pass-through entities — remain ambiguous.

For one, it’s unclear how the 20 percent deductions on pass-through incomes will be calculated in certain cases. Many real estate companies own several different entities, some of which bring in little to no income. It’s not yet known if the income from various LLCs can be aggregated to calculate the deduction, according to BDO USA’s Robert Klein.

On Tuesday, Klein and his colleague Amy Rosenthal discussed the various positive and negative impacts expected from the new legislation during an event held by B’nai B’rith New York City Real Estate. Another issue is whether property management companies will qualify for the pass-through deductions because service businesses — such as those offering financial and brokerage services — are excluded. Various service and development service fees are associated with property management.

Rosenthal noted that certain rules governing how the pass-through deduction is applied to real estate investment trusts could guide investor behavior. Those who invest directly into an UpREIT or DownREIT receive a 20 percent deduction. But for those investing in an operating partnership, the law restricts the deduction based on wages.

“There is potential that if you’ve invested in the operating partnership, you’re going to owe more taxes,” Rosenthal said. “The REIT doesn’t have those wage limits; you just get a plain 20 percent, so that’s something to watch for.”

Of course, there’s one area of the tax law that many view as unambiguously negative. Rosenthal noted that new bill caps the amount of state and local taxes, otherwise known as SALT, that can be deducted from their federal tax bill at $10,000.

“We are in New York, so we’re screwed,” she said.


Related Articles

arrow_forward_ios
Donald Trump, Cy Vance and Trump Organization CFO Allen Weisselberg (Getty)
Manhattan DA narrows focus on Trump Org CFO
Manhattan DA narrows focus on Trump Org CFO
(Getty / Photo Illustration by Alison Bushor for The Real Deal)
Five reasons Andrew Cuomo is doomed
Five reasons Andrew Cuomo is doomed
The person behind the prank website is still anonymous. (Getty)
Phony website falsely claims REBNY cancels rent
Phony website falsely claims REBNY cancels rent
(iStock/Illustration by Kevin Rebong for The Real Deal)
To boost economy, NYC will invest in rapid Covid test
To boost economy, NYC will invest in rapid Covid test
U.S. District Judge John Campbell Barker, who was appointed by former President Donald Trump, ruled the eviction moratorium to be unconstitutional. (Getty, Texas Attorney General)
National eviction moratorium ruled unconstitutional, but remains in place
National eviction moratorium ruled unconstitutional, but remains in place
(iStock/Photo Illustration by Kevin Rebong for The Real Deal)
Dubious gentrification study will backfire on New York City
Dubious gentrification study will backfire on New York City
From left: Scott Stringer, Shaun Donovan, Maya Wiley, Andrew Yang, Kathryn Garcia and Eric Adams
Where mayoral candidates stand on real estate
Where mayoral candidates stand on real estate
Mayor Bill de Blasio and City Council speaker Corey Johnson (Getty)
De Blasio admin opposes Corey Johnson’s land use overhaul
De Blasio admin opposes Corey Johnson’s land use overhaul
arrow_forward_ios

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

Loading...