Tax Cuts and Jobs Act – Affordable Housing Q&A Part II
Recently, we outlined some of the federal income tax impacts triggered by the overall tax reform legislation passed in late December 2017. In January, we noted that the Tax Cuts and Jobs Act (Act) resulted in number of critical tax implications for the Affordable Housing industry. We highlighted these in our January client tax alert.
Since then, we have gathered additional technical information that is critical for the industry to consider. While there remain plenty of technical tax accounting issues that still require more IRS guidance, the following information is important for those in the industry to know.
Practically speaking, property owners should now be communicating with investors to decide what elections will or won’t be made in 2018 or in the future. Will you elect to be a real property trade or business to fully deduct interest expense? If so what will that election mean for your real property depreciation? Will you be taking 100% expensing for personal property and land improvements acquired and placed in service after September 27, 2017 or potentially electing out? Now is the time to have these discussions because it is likely that the syndicators and investors will be re-forecasting their expected benefits over the coming months.
The advice to communicate with investors also applies to deals that have not yet been placed in service. In the case where the choice is made to be an electing real property trade or business, the real property will be depreciated over 30 year ADS life. Some investors are choosing not to take the 100% expensing for personal property and land improvements so it will be important to elect out of the bonus.
There are several areas of importance that we have been discussing with our developer clients especially the new 20% deduction for pass-through income and choice of entity type to use to operate their business.
Other provisions of the new law that have impacted our real estate developers are the limitations on Net Operating Loss (NOL) deductions and excess business losses. These considerations are explored more fully in “A Review of the Tax Cuts and Jobs Act – Commercial Real Estate.”
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.