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
Bronx development files late, and local pol claims credit
Bronx development files late, and local pol claims credit
Bronx development files late, and local pol claims credit
City won’t landmark Grand Prospect Hall, clearing way for demolition
City won’t landmark Grand Prospect Hall, clearing way for demolition
City won’t landmark Grand Prospect Hall, clearing way for demolition
A crackdown on mob activity has brought to light the alleged shakedown of a construction union based in Queens. (iStock)
Colombo mob boss arrested over alleged construction union shakedown
Colombo mob boss arrested over alleged construction union shakedown
Gov. Gavin Newsom (Getty)
California Gov. Newsom wins recall election; homeless, housing crises loom
California Gov. Newsom wins recall election; homeless, housing crises loom
The Real Estate Roundtable's  John Fish and Jeffrey DeBoer (Real Estate Roundtable, iStock)
Real Estate Roundtable: Break deadlock on $1T infrastructure bill
Real Estate Roundtable: Break deadlock on $1T infrastructure bill
New York City Mayor Bill de Blasio (Getty)
For real this time? City schedules tax lien sale
For real this time? City schedules tax lien sale
Hochul urged to resolve Mario Cuomo Bridge dispute
Hochul urged to resolve Mario Cuomo Bridge dispute
Hochul urged to resolve Mario Cuomo Bridge dispute
Cuomo's High Line project has survived him — but his other proposals remain uncertain
Cuomo’s High Line project survives him, boosting Brookfield
Cuomo’s High Line project survives him, boosting Brookfield
arrow_forward_ios

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

Loading...