Developments from the Tax Cuts and Jobs Act

1. Opportunity Zones have garnered much attention since the passing of the Tax Cuts and Jobs Act. On April 17, 2019, the Treasury Department issued a set of proposed regulations providing much needed guidance on the subject.  At first glance, the new rules seem to be pro-taxpayer in that they are more flexible than first envisioned and encompass a larger set of qualifying activity that can be conducted in the zone. Opportunity zones may become an even more sought-after investment.
2. The Tax Cuts and Jobs Act, as written, excluded qualified improvement property, from 100% bonus depreciation and a 15-year depreciable life. As the law stands today, qualified improvement property is subject to a 39-year depreciable life and it is not eligible for bonus depreciation. That was a bit of bad news for the real estate community. On March 14, 2019, Senators Pat Toomey (R-PA) and Doug Jones (D-AL) introduced a bill to correct that mistake. The “Restoring Investment in Improvements Act” would make qualified improvement property once again eligible for 100% bonus depreciation and a 15-year depreciable life. It is good to see bi-partisan support for the correction, which looks to be retroactive to Jan. 1, 2018, but the bill has a long road ahead before passing.  You may consider holding off on filing your tax returns that have qualified improvement property to see how the bill plays out.
3. Who said the Tax Cuts and Jobs Act was supposed to simplify taxes? As we have seen, a couple of new laws added a complexity to pass-through entities, specifically in the real estate world, that we have not seen before. The new interest expense limitation under Section 163(j) caused a careful examination of a company’s current and future operations to determine the best course of action.  The new Qualified Business Income Deduction under Section 199A also caused a number of new disclosures on the K-1(s) from pass-through entities so the owners could properly report and calculate the deduction, if applicable.
4. The 2018 tax year brought with it some changes in reporting certain information on various tax returns which could be easily overlooked.  For example, the IRS added a requirement to report a partner’s negative tax basis capital if K-1(s) are reported on a basis other than tax basis. Failure to comply could result in penalties. The IRS also removed the requirement to provide the Social Security number of the Partnership Representative.  That was good news for those that were hesitant to report sensitive information on a partnership tax return.