On January 18, 2019, the IRS issued the safe harbor for rental real estate to be treated as a trade or business for purposes of IRC 199A's Qualified Business Income 20% deduction.
Real etate professionals, who operate "a rental real estate enterprise... [which is] an interest in real property held for the production of rents and may consist of an interest in multiple properties," should study the safe harbor closely as it can make a huge difference in your pocketbook. Interestingly, while multiple properties may qualify as the same enterprise, "[c]ommercial and residential real estate may not be part of the same enterprise."
According to the IRS, the safe harbor requires:
(A) Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise;
(B) For taxable years beginning prior to January 1, 2023, 250 or more hours of rental services are performed (as described in this revenue procedure) per year with respect to the rental enterprise. For taxable years beginning after December 31, 2022, in any three of the five consecutive taxable
years that end with the taxable year (or in each year for an enterprise held for less than five years), 250 or more hours of rental services are performed (as described in this revenue procedure) per year with respect to the rental real estate enterprise; and
(C) The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: (i) hours of all services performed; (ii) description of all services performed; (iii) dates on which such services were performed; and (iv) who performed the services. Such records are to be made available for inspection at the request of the IRS. The contemporaneous records requirement will not apply to taxable years beginning prior to January 1, 2019
To claim the safe harbor, "include a statement attached to the return on which it claims the section 199A deduction or passes through section 199A information that the requirements in Section 3.03 of this revenue procedure have been satisfied."
Showing posts with label IRS. Show all posts
Showing posts with label IRS. Show all posts
Saturday, January 19, 2019
Wednesday, January 13, 2016
FIRPTA Withholding Tax Rate Increased 5%
On December 18, 2015, the Protecting
Americans from Tax Hikes Act (PATH) was signed into law, amending, among
other things, the Foreign
Investment in Real Property Tax Act (FIRPTA). The most significant change
is that there has been an increase in the withholding rate from 10% to 15%. What this means is that the buyer’s attorney will
withhold 15% from the purchase price to a foreign seller and submit this amount
directly to the IRS. The foreign seller will
now walk away with 15% less (rather than 10%) from sales of U.S. real property interests
but may be entitled to a refund, at least in part, if its income tax is less
than the 15% that was withheld from the purchase price.
The increase to 15% also applies to distributions by certain
domestic corporations to foreign shareholders and distributions by domestic or
foreign partnerships, trusts, or estates. However, the 10% withholding rate
still applies to personal residences that have a purchase price of less than $1
million.
The increased withholding tax rate ensures tax compliance by
a foreign person or entity by offsetting any tax owed on a sale of real
property. Planning ahead can allow a foreign seller to either reduce
the time that the withheld funds are held in escrow, or eliminate the
requirement to withhold any sale proceeds.
The seller’s attorney can make an application to the IRS for
a Withholding
Certificate, requesting a reduction in the percentage withheld from the
sale, based upon a showing that the seller’s maximum tax liability is below 15%
of the purchase price. If this Withholding Certificate is approved, the buyer’s
attorney, instead of the IRS, holds the funds in escrow; which can greatly
expedite the seller’s access to the funds. Alternatively, a foreign seller may be
exempt from withholding all together. This determination depends upon a list
of reasons; a common reason is if the property is a personal residence and
the purchase price is $300,000 or less.
The increased withholding tax rate is effective for
dispositions occurring on or about February 16, 2016, which is 60 days after PATH
was signed into law.
By Litigation Team at Lieb at Law, P.C., &
Anonymous
Tags:
FIRPTA,
Foreign Investment in Real Property Tax,
Foreign seller,
IRS,
PATH,
Protecting Americans From Tax Hikes Act,
Real property,
Withholding tax
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