Tax Planning

Donovan Legal PLLC provides federal and state tax planning to real estate developers, investors, funds, operating businesses, and the high-net-worth families behind them. The firm advises on the technical structures, elections, and transactions that determine the after-tax economics of an investment over its full life cycle from entity selection at formation, through capitalization and operations, to refinancing, recapitalization, and exit.

Tax planning is the most fact-dependent area of the firm’s practice. The right answer for any given client depends on the asset class, holding period, capital structure, investor mix, residency profile, and exit objective. The firm reads the underlying documents, runs the analysis, and provides advice grounded in the specific facts and not generalized guidance.

ENTITY SELECTION & STRUCTURING

Choice of entity is the foundational tax planning decision. The firm advises on:

Partnership and LLC structuring — including allocation provisions under § 704(b), targeted versus layer-cake allocations, qualified income offset and minimum gain chargeback drafting, and the interaction of distribution waterfalls with the substantial economic effect rules.
S corporation planning — eligibility analysis, single-class-of-stock issues, reasonable compensation, and conversion considerations.
C corporation planning — for closely-held operating businesses where the entity-level rate and qualified small business stock under § 1202 may be more efficient than pass-through treatment.
Disregarded entities and check-the-box elections — including holding-company structures, single-member LLCs, and Q-Sub elections.
Series LLC analysis — where state law permits, including federal classification questions.

REAL ESTATE TRANSACTIONS

Real estate is the firm’s core asset class. The firm advises on the tax aspects of every stage of a real estate transaction:

Acquisition structuring — deciding the right acquisition vehicle, allocating purchase price across asset classes, planning for cost segregation, and addressing assumption of existing debt.
Like-kind exchanges under § 1031 — forward, reverse, and improvement exchanges, qualified intermediary structures, related-party considerations, and replacement-property planning.
Debt and equity financing — basis and at-risk implications under § 752 and § 465, characterization of preferred equity, original issue discount on subordinated debt, and the tax treatment of C-PACE assessments and other capital-stack components.
Refinancing and recapitalization — cash-out distributions, debt-financed distributions under § 731, and the partner-level and partnership-level consequences.
Disposition and exit planning — installment sales, structured payouts, charitable strategies, and pre-sale restructuring.

FUND-LEVEL TAX ADVISORY

The firm advises sponsors, investors, and the professionals advising them on the tax aspects of real estate investment vehicles. This work draws on Mr. Donovan’s earliest engagements at PwC, advising Wall Street venture capital firms and real estate investment funds on structured transactions, sponsor and limited-partner planning, and fund-level entity selection. While at PwC, Mr. Donovan performed tax due diligence on three real estate investment trust initial public offerings, and he later provided partnership tax counsel during the IPO of a hotel investment company as a real estate investment trust.

In private practice, the firm has formed domestic private equity real estate funds, including funds organized for the acquisition of residential properties, with deal sizes ranging from $1 million to $50 million. The firm advises on:

Private equity real estate fund formation — including domestic fund formation, sponsor and limited-partner economics, carried interest planning under § 1061, and management company structuring.
Sponsor and investor tax positions — including limited-partner tax due diligence on offered investments and sponsor-level entity structuring.

The firm does not form opportunity zone funds or REITs; that work is typically led by counsel with a dedicated funds practice. Where a fund or REIT is being formed by other counsel, the firm advises clients on:

Opportunity zone investment analysis — for taxpayers considering investment in qualified opportunity funds, including deferral, step-up, and exclusion mechanics under § 1400Z-2.
REIT-related tax questions — including income and asset testing under § 856 and prohibited transaction analysis under § 857(b)(6) for taxpayers and their advisors evaluating REIT structures.

INTERNATIONAL TAX PLANNING

The firm has a substantive cross-border tax practice in both directions. We advise on inbound investment by foreign persons into U.S. real estate and U.S. business interests, and outbound investment by U.S. persons into foreign real estate and foreign business interests. Geographic focus is primarily on European Union countries, with additional work in Latin America and the Caribbean. Mr. Donovan’s international tax experience originated at PwC and remains a regular component of the firm’s practice.

Inbound structuring — for foreign individuals, families, corporations, and funds acquiring U.S. real estate or U.S. business interests:

Choice of entity for foreign acquisition, including direct ownership, U.S. and foreign blocker corporation structures, leveraged blockers, partnerships, and REIT considerations.
FIRPTA structuring under § 897 and § 1445, including USRPHC analysis, Form 8288-B withholding certificate strategy, and § 1446(f) for partnership-interest dispositions.
U.S. estate and gift tax planning for foreign individuals, including treaty-based planning where applicable and structuring around the limited federal estate tax exemption for non-resident aliens holding U.S.-situs property.
Branch profits tax under § 884 and net-election analysis under § 871(d) and § 882(d) for rental and operating income.
Income tax treaty positions affecting foreign ownership of U.S. real estate and business interests.

Outbound structuring — for U.S. individuals, families, investors, funds, sponsors, and operating businesses acquiring or holding foreign real estate and foreign business interests:

U.S. individuals and families acquiring foreign personal residences, vacation properties, and family holdings including direct ownership versus foreign-entity-held analysis and the implications for U.S. estate, gift, and income tax.
U.S. investors and funds investing in foreign real estate ventures including sponsor and limited-partner positions, foreign tax credit planning, and exit structuring.
U.S. sponsors raising U.S. capital for foreign real estate projects including fund-level structuring, repatriation strategy, and management-company considerations.
U.S. operating businesses with foreign real estate or operations including foreign branch versus subsidiary analysis and integration with overall corporate tax strategy.

Anti-deferral regimes — Subpart F under § 951 through § 965, GILTI under § 951A, the PFIC regime under § 1291 through § 1298, and CFC determination and consequences. The firm advises on the application of these regimes to real estate-holding entities, where the analysis often turns on whether income qualifies for active rental, active financing, or other applicable exceptions, and on PFIC elections (QEF and mark-to-market) where avoidance of the default regime is preferable.

Foreign tax credit planning under § 901 through § 909, including FTC limitation analysis under § 904, sourcing rules, the high-tax exclusion election under § 951A(c)(2)(B)(ii), and creditability of foreign taxes following the recent regulatory changes.

PASSIVE ACTIVITY & INVESTMENT INCOME PLANNING

Two regimes drive the after-tax outcome of real estate investments held by individual investors: the passive activity loss rules of § 469 and the net investment income tax of § 1411. The firm advises on:

Real estate professional analysis under § 469(c)(7), including aggregation elections, material participation testing, and recordkeeping requirements.
Activity grouping under Treas. Reg. § 1.469-4 and the related disclosure obligations.
The seven-day average rental exception of Treas. Reg. § 1.469-1T(e)(3)(ii)(A), and short-term rental classification more generally.
Net investment income tax planning, including the trade-or-business safe harbor for real estate professionals.

STATE TAX PLANNING

Federal and state tax planning are not separable for high-net-worth clients with multistate operations or holdings:

Residency planning — particularly for Northeast clients establishing Florida residency, including the documentary record needed to defend domicile change under audit by the prior state.
Pass-through entity tax (PTET) elections — analysis and election strategy in jurisdictions where PTET is available as a workaround to the SALT cap.
Apportionment and allocation — for multistate operating businesses and real estate portfolios.
State conformity issues — where state tax treatment diverges from federal on items such as bonus depreciation, opportunity zone benefits, and pass-through deductions.

TAX-AWARE TRANSACTION SUPPORT

Many of the firm’s tax planning engagements arise during a specific transaction such as an acquisition, a refinancing, a fund formation, an exit. The firm works alongside the client’s deal counsel, accountants, and other advisors to ensure the tax structure is integrated with the underlying commercial terms. Where the firm is also handling the real estate, business, or fund-formation legal work, the integration is part of one engagement; where it is purely a tax advisory role, the firm scopes its work accordingly.

To discuss a tax planning engagement, contact the firm through the contact page. Related practices are described on the Tax Compliance, Tax Controversy, and Real Estate pages.