12B— June 22 - July 12, 2012 — Mid Year Review — Mid Atlantic Real Estate Journal
www.marejournal.com
T AX S PECIALISTS
By Brian T. Lovett, CPA, JD, WithumSmith+Brown Real Estate Professionals - The IRS simplifies available relief
F
or individuals with in- vestments in real estate, qualification as a real
must pass both tests of In- ternal Revenue Code Section 469(c)(7)(B). First, more than one half of the overall personal service hours performed by the taxpayer in the tax year must be performed in real estate trades or businesses in which the tax- payer materially participates. Second, the taxpayer must per- form at least 750 hours in real estate trades or businesses in which that taxpayer materially participates. For purposes of the second test, the IRS looks at each real estate activity separately. A taxpayer would only qualify as a real estate professional for real estate activities in which they
perform more than 750 hours during the tax year. A solution for a taxpayer try- ing to qualify as a real estate professional lies in a special election available to taxpayers under Regulation Section 1.469- 9(g). This regulation allows a taxpayer to aggregate all real estate activities into one activity. After aggregation, a taxpayer must perform 750 hours across the grouped activities. This elec- tion may be made in any year in which the taxpayer qualifies as a real estate professional and must be made on an originally filed tax return. If this election is not timely filed, a taxpayer
must request a ruling for late relief under §301.9100-3 and pay a user fee. Revenue Procedure 2011-34, issued in May 2011, simplifies the process of requesting late relief to file a §1.469-9(g) election and allows qualifying taxpayers to retroactively aggregate real estate activities. In order to qualify under Rev. Proc. 2011- 34, a taxpayer must meet the following requirements: 1. The taxpayer failed to make an election under §1.469-9(g) solely because the taxpayer failed to timely meet the require- ments in §1.469-9(g); 2. The taxpayer filed consistently
with having made a timely elec- tion under §1.469-9(g) on any return that would have been af- fected if the taxpayer had timely made the election; 3. The taxpayer has timely filed each return that would have been affected by a timely filed election; and 4. The taxpayer has reasonable cause for its failure to timely meet the requirements of §1.469- 9(g). Taxpayers who meet these requirements may attach the statement required by §1.469- 9(g) to an amended return for the most recent tax year. The statement must contain all of the information required under §1.469-9(g) and must explain the reason for the failure to file a timely election. Last, the state- ment should identify the taxable year for which it seeks to make the late election. Since the election required by §1.469-9(g) is the difference for many taxpayers between qualifying and not qualifying as a real estate professional, the late election relief provided by Rev. Proc. 2011-34 is a wel- come opportunity. Taxpayers requiring late relief for failure to timely file the §1.469-9(g) election should capitalize on the chance to make the election ret- roactively without the cost and burden of a ruling request. B r i a n T. L o v e t t , o f WithumSmith+Brown, fo- cuses his practice on all aspects of tax compliance for real estate entrepreneurs and regularly advises cli- ents with respect to the tax consequences of potential transactions. ■ Retail investment conditions . . . down further. Cap rates for multi-tenant assets in the Belt- way, meanwhile, begin in the 6 to 7% range. Outside the Belt- way, properties within walking distance to a Metro station will command prices slightly above their District counterparts. Michael Fasano is the vice president and regional man- ager of the NewJersey office of Marcus & Millichap Real Estate Investment Services. He wrote this in conjunc- tion with Spencer Yablon, vice president of the firm’s Philadelphia office, and David Feldman, regional manager of the Washington, D.C., office. ■ continued from page 10B
estate profes- sional can re- sult in favor- able tax con- sequences. While losses from real es- tate activities are passive per se , the losses of a real
Brian T. Lovett
estate professional are consid- ered ordinary losses available to offset other ordinary income. In order to qualify as a real estate professional, a taxpayer
BE IN A POSITION OF STRENGTH SM
Our philosophy is simple. The client relationship means everything. Our commitment to quality is known throughout the industry and is inherent in all that we do. We provide effective guidance and solutions to real estate owners and developers, builders, property managers and investors. We will be with you from inception of the project to the final sale, proactively helping you to gain the maximum value from your investment.
Rebecca Machinga, CPA, Partner, Practice Leader Real Estate Services Group 609.520.1188
withum.com
Made with FlippingBook flipbook maker