All Forum Posts by: Lance Lvovsky

@Rabih El-Khoury

Is operating agreement in place? What does it say? Generally buy sell provisions should be available. Business can do a valuation for property and either the business can redeem the one partners shares or the other 2 partners can buy the one partner out. Definitely speak to your attorney to make sure they draft up all required transfer and sale docs. Speak to your CPA to advise on buy sell tax provisions.

Additional tax relief has just been released.

The Treasury Secretary and the Internal Revenue Service have used their authority to extend additional tax relief for filing and paying taxes for time sensitive acts occurring between April 1, 2020 and July 15, 2020. Of significance, this moves the 2020 Q2 estimated tax payment to July 15th. Under prior relief, Congress moved the Q1 estimated tax payment to July 15th, but did not address the Q2, which by statute is due June 15th. This certainly created undue burden on taxpayers and has since been resolved with Q2 estimated tax payments now also due July 15th. The additional relief under IRS Notice 2020-23 affects many other tax returns, including Estate Tax Returns, Gift Tax Returns, Private Foundation returns, etc. Under IRS Notice 2020-23, generally any return (along with payment) that ordinarily is due within the window mentioned above, the new due date is now July 15th, 2020.

Your understanding is not correct - all business expenses related to rental income are deductible, including what you listed above (subject to facts and circumstances, such as travel, home office, and meals, which require a discussion with your CPA to understand how these are deductible).

You also cannot just flip flop between Schedules E and C. Both schedules serve two different types of businesses.

Good luck.

 That would be a gift. A gift tax return would need to be filed if your dad transfers property to a Trust, and the transfer is a completed gift. Your dad would likely owe no gift tax - I assume he still has his lifetime exemption. It is really a conversation you should have with an attorney (who can draft the documents) and a CPA who can explain to you gift tax implications, Trust tax administration, etc.

The depreciation is taken at the syndication level - generally a partnership, so if it is rental real estate, your K-1 will show an  amount in box 2 - net rental real estate income (loss). I am not sure what you mean by a passive investor taking depreciation.

When the partnership sells the asset, they will carry out the capital gain, and they should separately report any unrecaptured 1250 gain you have - yes that is taxed max 25%. Look at Schedule D tax worksheet.

I am not immediately familiar with the CA property tax assessment laws - I leave that to your advisors to do that research.

However, I am curious whether anyone informed you of potential income tax consequences in the transaction you entered?

Trace the debt proceeds and deduct on property acquired.

CARES passed 1 week ago. While some guidance has been issued, we still await on more guidance from Treasury and IRS. 

Below are some additional observations relating to tax relief measures.

1. Employee Retention Credit (maximum $5,000 tax credit per employee).  Note, if you receive a PPP loan, you do not qualify. This is regardless of whether the loan is forgiveness (key point - see below).
   1. The IRS issued their informal guidance. Regulations are expected in the future. The informal guidance states to qualify for this credit, you have to meet one of two tests:
      1. The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, the employer no longer qualifies after the end of that quarter; or
      2. The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
2. Payroll tax deferral.
   1. You may defer payment of the employer share of payroll taxes owed on wages paid for the period ending December 31, 2020. Such deferred taxes are due in two installments: 50% by December 31, 2021, and 50% by December 31, 2022. This payroll tax deferral applies to all employers, with no requirement to show any specific COVID-19-related impact. However, the deferral is not available to any employer that receives loan forgiveness with respect to the Paycheck Protection Program loan as described above. As such, I interpret this that if you receive a PPP loan, but the loan is not forgiven, you qualify for this relief. 
3. Refund opportunity exist for many of you to amend your 2018 returns. For example, a client had a large NOL in 2018. In 2013 and 2014, client paid the IRS over seven figures in taxes, because the business performed well those years. Under CARES, an NOL can be carried back 5 years. I am now amending his returns, and he will get large checks shortly from the government.

Certain taxpayers may find they are in a position to maximize tax efficiencies for 2020 and beyond. With the markets volatile and trading at compressed valuations, clients can consider taking discounts on their traditional IRA account(s) by executing a conversion to a Roth IRA. This tax planning strategy is further amplified by taxpayers who will have a net operating loss / significant business losses in 2020. Why? Because losses reduce your overall taxable income, and you may attain not only a discount on the conversion to a Roth IRA, but you may also be in a much lower tax bracket in the 2020 tax year. Computations and models should be prepared to simulate taxable income projections for 2020 and it is important to maintain tax bracket optimization when doing a conversion. Remember - the conversion brings the account value into taxable income for 2020.

There has been additional guidance from the Treasury and SBA.

Some of my observations are posted below. This should help many of you.

1. The Paycheck Protection Program (PPP) may be available to certain landlords who have payroll. Generally landlords with multi-family and/or commercial properties and they are running a full business with day to day operations. Can be very helpful during this time of crisis.

2. PPP for non-real estate businesses. I realize many of you here are perhaps part-time landlords, and are running full fledged businesses not related to real estate. Maybe you are an attorney, engineer, doctor, surgeon, etc. You very likely qualify for PPP. Call your advisor today. Yes it is the weekend, but your advisor should be working this weekend given CARES passed a mere 7 days ago. Furthermore, those of you who are paid as independent contractors, or you are a partner in your company, and you have setup an S Corp, you may not only qualify for the PPP loan, but also may qualify for FULL loan forgiveness. Yes, even if you paid yourself a salary for $200,000 in 2019, and for 2020, for reasons relating to COVID-19, you may only pay yourself for example $100,000. More than a 25% reduction, but my interpretation of the CARES Act is you qualify. Again, call your advisor today.

3. Economic Injury Disaster Loan program - landlords not qualifying for PPP may qualify for this. It is important to discuss the specifics of your situation with your advisor and strategize accordingly.

4. If your business has an existing SBA Loan in service under Section 7(a), or 7(m), you qualify for relief. This includes SBA loans pursuant to 504 Certified Development Companies (CDCs). Many commercial property owners before COVID-19, had taken out these loans. CARES Act gives potential debt service relief for one year.

5. The Interim Final Guidance issued by SBA on 4.2.2020 states that employers cannot count independent contractors for their payroll calculations under PPP program. This is a change from what Congress passed in the CARES Act. The Interim Final Guidance also states that additional guidance is coming regarding loan forgiveness. As you can see, this has been a moving target with guidance being changed daily.

The above are just some observations I have made this past week. Good luck and stay safe.

 Maybe. Generally not. If invested in a qualified opportunity fund, then potential capital gain deferment. And a multitude of other rules come up with that (along with other tax planning opportunities such as tax free appreciation), won't go into details as it is worth a conversation with a CPA and attorney.