REJournals.com - Commercial Real Estate Property News for Chicago and the Midwest

Guy Ackerman, partner at Plante & Moran, PLLC, says that the commercial real estate industry will try and fight changes in the Carried Interest Tax. Ackerman recently spoke with the Illinois Real Estate Journal about changes in tax laws and the financial system.

Q. The Small Business Jobs Act of 2010 was signed into law in September of this year. Are the provisions contained in the act just for small business?

A. Not at all, the act has changes that will impact both large and small businesses.

Q. What are some of the changes that will impact people owning real estate?

A. First of all for tax years beginning in 2010 and 2011 the dollar limits for expensing so called Section 179 property have been increased. Taxpayers can now expense up to $500,000 of eligible property purchase and the phase-out limitation doesn’t kick in until $2,000,000 of qualified property are purchased during the year.

Q.  What impact do you think it will have on decisions to purchase qualified property before the end of the year?

A.  With tax rates expecting to increase and the year end rapidly approaching, I don’t see much impact for the remainder of 2010.

Q. Is there anything thing else in the bill that pertains to real estate?

A. In the case of the taxation of “Carried Interest’s” it is not what is in the bill but what was left out. There is nothing in this bill that discusses or changes how Carried Interest’s will be taxed.

Also up to $250,000 of qualified real property expenditures is now eligible property under Section 179. The way that it is supposed to work is that they will 50-60 percent of income if you are subject to the carried interest. They will tax that at 35 percent. The balance will be taxed at a higher rate. There have been a couple different proposals. The impact of what it does, it would increase the tax to the promoter. Most deals with institutional investors, they put up 90 percent, and the developer puts up 10 percent. If I put up 10 percent of the money, I should be getting 10 percent of returns. If I put up 10 percent and I end up getting 30 percent, the income from that promoted interest is what will be taxed differently. People are driving up new ways to try to avoid it. ICSC has been the most active to keep the rules the way they are.

Q. The Dodd-Frank Act (Financial Reform) was signed into law on 7-21-10. What impact could this legislation have on the finance industry?

A. The Dodd-Frank Act is over 2,300 pages, it requires 243 rulemakings, direct 67 new studies to be completed in varying times from date of enactment and requires 22 new periodic reports. And as far as complexity it doesn’t have a peer in my 34 years in practice.

A new Financial Stability Oversight Council was established. You can find the detail in the Treasuries web site. It is suppose to provide, for the first time, comprehensive monitoring and to be the watch dog over financial firms, including new defined non bank financial companies.

Also a new Federal Insurance Office was created to watch over the insurance industry and provide some uniformity among state regulation of specified types of insurance products.

Q: What could changes in FASB mean for the industry?

A: Right now if I have an operating lease,  the lessee expenses the rental payments over a straight line basis. If the new rules are enacted the way they are proposed, then the lessee will have bigger expenses in the earlier years than they would under the current rules. Is it going to impact the way people will do business with each other? I get the sense that most parties to a lease are not focusing on both the balance sheet and income statement  changes and  how it impacts the financial accounting. Some lessors have talked to their bank when they are refinancing debt asking banks to put language in loan documents that the financial statements will be interpreted without regard to the new lease accounting rules. That make sense, because no one knows what the end game will be. The international standards and U.S. standards still have to get together to see if they want to do this. The consensus is that it is pretty much going to happen, but probably not until 2012.

Tags | finance, Investments, Plante Moran

© 2012 Real Estate Communications Group. Duplication or reproduction of this article not permitted without authorization from the Real Estate Publishing Group. For information on reprint or electronic pdf of this article contact Mark Menzies at 312-644-4610 or menzies@rejournals.com