Ronald J. Cappuccio, J.D., LL.M.(Tax)

Ronald J. Cappuccio, J.D., LL.M.(Tax)
Tax Attorney and Business Lawyer

Sunday, June 24, 2007

Cong/ Levin Proposes to Increase Tax on Real Estate Investments!

Cong. Levin Bill (HR 2834) Proposing New §710, Treating Partnership Allocations To Investment Management Services As Ordinary Income.

This bill is designed to attack REITs and large public partnerships which have some tax advantages. HR 2834 is that it would tax as ordinary income the income interests of "sweat equity" partners for a much broader class of partnerships than simply hedge funds and private equity. Examples are:
A real estate property management company - not a REIT, just a parents and children apartment management company -- structured to give working kids a bigger percentage of the income than they'd earn on their capital contributions alone.

A private holding company that owned operating companies as subsidiaries -- as the holding company owns those as "securities." The bill would convert income interests at the holding company level into ordinary income, while allowing income interests in each operating subsidiary (that's not based on real estate, securities, commodities, or derivatives thereof) to retain current tax treatment.

A securities family limited partnership structured with 2701-compliant preferred interests held by the older generation and common interests held by the younger generation, as the latter are receiving distributions out of proportion to their capital. If the older generation held at least some of the common interest, so that distributions with respect to the common interest were always in proportion to the capital contributed. Note also the new rule for deemed disposition of appreciated assets distributed in-kind with respect to a partnership interest subject to the new rules. This would diminish a secondary advantage of the current rules that allow in-kind distributions of appreciated securities, which the distributee could use for tax-driven planning, such as contributions to charities while avoiding gain recognition or contributions to CRTs while deferring gain recognition.

Once again, Congress does its best to confuse the tax law and public.

Thursday, June 14, 2007

Housing Hit Again!

Today's new reported mortgage rates for 30-year fixed loans hit 6.75%. This is the highest level in almost a year. Further, “sub-prime” defaults and foreclosures both are at record highs. More than 15% of“sub-prime” adjustable loans are delinquent and 3.75% are in foreclosure.

This bad news for real estate certainly is a leading indicator of an economic decline.

Tuesday, June 12, 2007

Economy Looks Bad for Housing

Rising longer-term interest rates yielding 5.25%10-year Treasury marked the highest level in ten months. In early March, the 10-year yield was 4.5%. Because many consumer and corporate loans are tied to the 10-year Treasury, effective loan interest rates are rising.

Home builders are concerned by large home inventories, rising interest rates, and tighter lending standards. This may be the final push for the weakened housing market and the general economy that has relied housing for growth in the past five years.