Notes and commentary on federal and state tax matters, real estate tax, partnership and entity-level taxation, and tax controversy practice. Articles are written for sophisticated readers — tax professionals, real estate investors and developers, family offices, and the high-net-worth families their work serves — and reflect the firm’s tax-first approach to real estate practice.
A tax strategy that produces $1,500,000 of first-year deductions sounds spectacular until the taxpayer learns that, of the $1,500,000, only $626,000 will offset other income this year. The remaining $874,000 becomes a net operating loss subject to § 172’s 80% taxable-income limitation. How to model the real benefit, not the headline benefit, post-OBBBA.
Continue reading →Properly structured, the “short-term rental loophole” can convert a real estate investment into a substantial federal tax deduction in the first year of ownership. Improperly structured — which is more common than its enthusiasts acknowledge — it produces nothing but a depreciation schedule that runs forever and a notice from the IRS two years later. The actual mechanics of § 469, the 7-day rule, and the 100-hour test.
Continue reading →When real estate developers and fund sponsors send a partnership agreement to their attorney for review, the attorney typically reads it as a legal document. That review misses something important. The partnership agreement is also — and in a real sense, primarily — the tax framework of the deal. Almost every economic outcome the partners care about is determined by tax provisions buried inside the agreement.
Continue reading →Foreign persons selling U.S. real estate face a federal withholding regime that operates very differently from ordinary income tax. The Foreign Investment in Real Property Tax Act — FIRPTA — requires the buyer (acting as withholding agent) to withhold a percentage of the gross sale price at closing. The mechanics matter, and the consequences of getting them wrong fall on the parties unequally.
Continue reading →The letter arrives in a plain envelope from the Internal Revenue Service. The taxpayer’s name and address appear in the upper-left corner. There is a number in the upper right that means something to the IRS but very little to most taxpayers. The first 30 days after that letter arrives matter more than most people realize.
Continue reading →Disclaimer. Articles on this page are provided for general informational purposes only and do not constitute legal or tax advice. Readers should not act on any information without consulting qualified counsel familiar with the specific facts and applicable law of their matter. Reading these articles does not create an attorney-client relationship with Donovan Legal PLLC or any of its attorneys. Each tax and legal matter is unique and outcomes depend on specific facts, applicable law, and circumstances.