6C — August 2023 — Owners, Developers & Managers — M id A tlantic Real Estate Journal
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O wners , D evelopers & M anagers
By Harrison Lindsay, Withum Changes to the 163(j) Interest Expense Limitation for the Real Estate Industry
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of the taxpayer’s deductions allowable for depreciation, amortization, or depletion, per the IRC. However, in tax years starting in 2022, these add-backs are no longer used to calculate the ATI of the tax- payer. This, in effect, reduces ATI, which would result in a smaller allowable interest ex- pense deduction after applying the 30% limitation. There is a provision in the tax code for certain real estate businesses to elect out of this interest limitation and be able to take the full amount of busi- ness interest expense incurred
during their tax year. The real estate businesses that qualify to make this election include real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, opera- tion, management, leasing, or brokerage trade or business, per the IRC. However, by making this election, tax- payers will have to convert certain classes of fixed assets (Residential Rental Property, Nonresidential Real Property, and Qualified Improvement Property) to the Alternative Depreciation System (ADS)
and would no longer be able to depreciate these assets using the standard MACRS method and certain property would no longer be eligible for bonus depreciation. Withum can assist with making the election with the IRS, conversion of fixed asset depreciation to the allowable ADS method and answer any questions. Withum also pro- vides cost segregation services to clients who may want to help mitigate the decelerated depreciation that occurs with the election out of 163(j). Withum provides many other offerings in real-estate focused advisory, audit, and tax services. For additional in- formation or inquiries, please reach out to a member of the Real Estate Services Team. Harrison Lindsay, CPA is a Tax Supervisor at Withum. MAREJ Colleen raises $3.5M to optimize rent collections for multifamily CRE with AI DAYTONA BEACH, FL — Colleen , AI platform optimiz- ing payment collections for mul- tifamily real estate business, announced that it has raised $3.5M in Series Seed funding. The round was led by Wilshire Lane Capital , an early-stage venture capital firm backed by Morgan Properties , with participation from Skybox Capital, Magnolia Capital and National Home Rentals . Colleen is an AI-powered, in- tegrated platform solution built to optimize rent and debt col- lections for multifamily apart- ment managers and residents. Colleen will use the funding to scale its go-to-market organiza- tion and accelerate investments in product, engineering, and data science. “Helping residents stay cur- rent with their rent payments, while ensuring that their apartment communities are operating at peak efficiency, is top of mind for our operators,” said Adam Demuyakor , founder and managing partner at Wilshire Lane Capital. “Us- ing their proprietary Genera- tive AI modules, the Colleen team has paved the way for a new breed of innovative solutions that will help better serve our industry.” MAREJ
nternal Revenue Code (“IRC”) Section 163(j) limits the amount of
interest rates on the rise because of recent inflation, this business interest ex- pense disallowance could be painful for taxpayers, es- pecially ones that will have larger amounts disallowed. For businesses where the business interest expense limi- tation applies, the amount of business interest expense al- lowable for deduction typically cannot exceed 30 percent of the taxpayer’s Adjusted Tax- able Income (ATI). In years prior to 2022, one of the compo- nents used to calculate the ATI of a taxpayer was an add-back
bus iness interest ex- pense cer- tain busi- nesses can d e d u c t . Changes to the rules will further limit the
Harrison Lindsay
amount of business inter- est expense that can be deducted for companies where the interest expense limitations apply. With
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