The Tax Importance of Having a Profit Motive
Individuals with real estate businesses often expect to deduct business-related expenses for tax purposes. But those tax deductions might not be a guarantee. One married taxpayer recently learned the hard way when the IRS disputed business deductions that led them to the U.S. Tax Court. Sarkin v. Commissioner provides a helpful overview of how the […]
Reintroducing Accessory Dwelling Units in Chicago
Sarah M. Zambrano
Accessory dwelling units (ADUs) have become popular rental alternatives in urban areas across the U.S. over recent years. Many cities, including Portland, Los Angeles, San Francisco and Washington, D.C., have already embraced the concept of offering these unconventional homes to offset the rising costs of housing within city limits. Now, more cities are evaluating current […]
What You Need to Know About the CARES Act and Qualified Improvement Property
Justin L. Sylvan
Earlier this year, the Coronavirus Aid, Relief, and Economic Security (CARES) Act corrected a drafting error related to real estate qualified improvement property (QIP). This retroactive correction, which accelerates the tax depreciation deduction for certain improvements to real estate, is of particular benefit to: Landlords and tenants who make improvements to leased space; restaurant, hotel […]
Is Adaptive Reuse Right for You?
Adaptive reuse is more than refreshing a dated mall or finding new tenants for an office building. It involves adapting an existing building for an entirely different purpose than for which it was originally intended. For example, think of converting an industrial building to mixed use, an office building to a hotel, a meatpacking facility […]
Did You Repair Your Real Estate Property or Improve it?
Repairs to tangible property, such as buildings, machinery, equipment or vehicles, can provide businesses a valuable current tax deduction — as long as the so-called repairs were not actually “improvements.” The costs of incidental repairs and maintenance can be immediately expensed and deducted on the current year’s income tax return. But costs incurred to improve […]
Related Parties’ Property Exchange Does Not Qualify as Like-Kind
Like-kind exchanges under Internal Revenue Code Section 1031 provide a valuable tool for taxpayers to defer taxes on capital gains. The exchanges are subject to some strict rules that are intended to prevent tax avoidance scams. In a recent U.S. Tax Court case, the parties to a like-kind exchange ran into one of those restrictions […]
LLCs: How Limited Is Your Liability?
Adam M. Levine
Many real estate investors hold title to their investment properties through a limited liability company (LLC). While LLC rules vary by state, this structure protects real estate investors from personal liability beyond the member’s equity investment. The administration of an LLC is fairly uncomplicated and, in addition, may offer potential tax benefits; however, there are […]
Historic Tax Credit is Alive and Well
Kathy Z. Jeziorski
The Historic Tax Credit (HTC) for rehabilitating historic buildings survived the TCJA but is less beneficial than it was for projects completed before 2018.
Valuation Matters: Appraisers Apply Four Tests to Determine Highest and Best Use
Kadir P. Sunardio
An important factor for an appraiser to consider when valuing real property is its “highest and best use.” This article reviews the four tests appraisers typically apply to determine that use.
Eminent Domain and the “Project Influence” Rule in Property Valuation
Eminent domain refers to the power of the government to take private property for public use. Under the Fifth Amendment, the government exercising this power must provide the property owner “just compensation,” which is generally the property’s fair market value (FMV). However, the valuation of the property may be influenced by the government’s plans for the acquisition, which can increase or decrease the FMV of the property. This is where the project influence rule comes into play.