The final provisions include a new rule that allows certain partnerships controlled by REITs to conduct the RPTB safe Harbor election of REIT at the partnership level. A partnership may make the election if one or more REITs directly or indirectly own at least 50% of the partnership`s capital and profits, if the partnership meets the reIT`s assets and the income criteria of 95% and 75% (tested as if the partnership were a REIT), and whether the partnership directly or indirectly owns real estate through interests in other partnerships or shares in REITs. Webster`s Dictionary defines “real estate” as “a property consisting of buildings and land; a business selling land and buildings” and defines “brokerage business” as “a broker`s business” or “brokerage fees or commissions”. Webster`s defines a “broker” as “a person who helps others. to buy and sell real estate. » . Therefore, the usual and ordinary interpretation of “real estate brokerage” within the meaning of Section 469(c)(7)(C) involves the merger of buyers and sellers of real estate. In Gentile, 65 T.C. 1 (1975), the Finanzgericht (Finance Court) held that an actor did not carry on the activity of an undertaking or undertaking because he required something other than income generation. The Supreme Court`s jurisprudence in Groetzinger, 480 U.S. 23 (1987), which appears in the preamble to Sec. 199A definitive rule that Gentile contradicted by holding that an individual`s lawful gambling activities were activities in a business or business, because the activity was carried on with continuity and regularity for the primary purpose of generating income or making a profit. The case-law on article 162 (a) therefore does not provide a uniform analysis for an undertaking or undertaking, but requires an assessment of the facts and circumstances in each individual case.
Based on the section 162(a) definition, the IRS should expect growing controversy with taxpayers seeking advantageous treatment when applying the sections. 163 (j) and 199A. The long-awaited guidance on limiting corporate interest charges under Article 163(j) of the Tax Code has recently arrived in the form of final rules (the Final Regulation), proposed new regulations (the proposed 2020 Regulation) and Communication 2020-59. The following article provides a summary of the impact on the real estate sector, which is generally beneficial, especially compared to the regulatory proposals published in November 2018 (the proposed rules for 2018). Under the Regulations. Article 1.199A-3(b), QBI is defined as the net amount of eligible income, profit, deduction and loss related to a business or business. However, there is no legal text or history for Article 199A that contains a definition of a business or enterprise. The orders cite section 162(a) and the case law defining a transaction or transaction for the purposes of the section. 199A without further elaboration.
The lack of specific guidance for the purposes of section 199A as to whether a taxpayer has more than one business or business remains a problem. The extension of the exceptions to the anti-abuse rule recognises that some taxpayers may share ownership of immovable property and real estate transactions for valid commercial reasons and that certain agreements with intervening related parties should not be considered subject to the anti-abuse rule. The combination of the notice and enhanced anti-abuse provisions gives taxpayers who own and/or operate residential facilities in a “propropco-opco” structure assurance that landowners and operators are eligible to choose the BPSR. The TCJA amended paragraph 163(j) and generally restricted the deduction of commercial interest for commerce or business. However, some trades or businesses are exempt from the restriction, which requires a clear definition of trade or business. The previous law allowed a deduction of commercial interest in the year in which the interest was paid or accrued, with certain restrictions for companies. Generally, paragraph 163(j) now limits a taxpayer`s interest deduction to 30% of adjusted taxable income (including business interest income and floor plan financing) and extends the restriction to all types of businesses. .