Big Real Estate Moguls Win as Smaller Investors Denied Tax Break
Corporate, International and Real Estate Taxation Partner Mark Stone was quoted by Bloomberg on the GOP's tax rule which might not give small businesses the tax break it intended. The real estate industry applauded the tax rule as it allowed owners of real estate businesses to tap into the pass-through tax break, which allowed them to participate in the 20 percent deduction, even if the company made more than the income maximum. The Republican law requires all taxpayers to be in what the Internal Revenue Service (IRS) calls a trade or business to qualify for the deduction.
Mr. Stone discussed that large commercial property developers have already met the trade or business requirement, but a smaller property investor would not qualify for the deduction. The Treasury Department released its final rules for the deduction on Jan. 18, 2019, that seemed to help smaller taxpayers through a proposed "safe harbor", but the regulations actually bar taxpayers who use triple net leases and spend fewer than 250 hours conducting business from using the tax deduction.
Mr. Stone explains that the trade or business definition is an "untested question" on whether a property owner with four or five buildings with triple net leases could qualify as a trade or business.
"When you have a lot of buildings, stuff happens," like boilers exploding that require the property owner to step in and take a more active role, Mr. Stone said.