Real Estate Roundtable Highlights Industry Trends & Regulatory Changes– February 17, 2017 by Adam Hill

We recently held our Real Estate Roundtable to update our clients on significant trends and legislative changes in the industry. Our speakers focused on targeted capital allocations, new partnership IRS audit rules, current-year tax planning and tax reform.
I addressed general tax issues related to the real estate industry — covering opportunities from the PATH Act, such as bonus depreciation, qualified improvement property and Section 179 expensing; Surface Transportation Act, including new deadlines for certain tax returns; and Ohio updates, including the Ohio Small Business Deduction and InvestOhio credits still available. Read more on these opportunities in our year-end tax planning blog. I also discussed a slowdown in the tax credits market, provided additional guidance on repair regulations, and addressed the potential impact of tax proposals under the new administration to the real estate and construction industries. 

Kim Palmer discussed targeted capital allocations, which are becoming standard in new LLC or partnership operating agreements. Historically, operating agreements typically provided for income/loss allocations to the partners based on the safe harbor provided under IRC Regulation 1.704-1(b)(2). This was more of a "cash follows tax" approach. Conversely, the targeted capital allocation language we are seeing more frequently in partnership agreements is more of a "tax follows cash" approach. Read more on this topic in "Targeted Capital Accounts: The New Standard in Partnership Operating Agreements." 

Donna Weaver briefed attendees on significant changes to partnership IRS audit rules. Namely, one streamlined set of rules for IRS audits of large partnerships will replace long-standing TEFRA and ELP rules, meaning the opportunity for increased IRS partnership audits beginning with the 2018 tax year. Guidance to help implement these rules has been put on hold by a temporary regulatory freeze set forth by the president, but the change is already written into law. Look for a more in-depth account of the rules in our April 2017 issue of Taxonomics. 

You can access a copy of the materials here. Thank you to all of our clients for attending our roundtable, and we look forward to the next event.