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October 19, 2018

Treasury Releases Proposed Rules on Opportunity Zones Program

Congressional Lame Duck Session Could Consider Condominium Tax Accounting and Other Real Estate Tax Policy Issues

Commercial Real Estate Industry Pioneer Marshall Bennett


Treasury Releases Proposed Rules on Opportunity Zones Program Issues  

The Treasury Department today released Proposed Regulations giving investors added guidance regarding the  new "Opportunity Zone" investment program.  The Real Estate Roundtable's Tax Policy Advisory Committee (TPAC) Opportunity Zone working group will analyze the much-anticipated regulatory proposal and their consequences for real estate-related jobs and investment.  (IRS proposed rules, Oct. 19)

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The Treasury Department on Oct. 19 released Proposed Regulations giving investors added guidance regarding the  new "Opportunity Zone" investment program.

  • In late June, The Estate Roundtable provided formal comments to Treasury Department and IRS officials regarding implementation guidance that could maximize real estate investment, capital flows and jobs into newly designated Opportunity Zone communities. (Roundtable Weekly, June 29) 

  • "Real estate development and redevelopment is a key component of any region's economic strength and growth," wrote Roundtable President and CEO Jeffrey DeBoer.  "In our view, successful implementation of the Opportunity Zone program requires careful consideration of how the new rules will apply to real estate and real estate investment activities." 

  • Congress created Opportunity Zones in the 2017 Tax Cuts and Jobs Act to encourage long-term, capital investment in economically struggling, low-income communities.  Opportunity Funds must invest in tangible business property located in a qualifying zone, which can include real estate, and the tax benefits are tied to the investment holding period.  The capital gain on an Opportunity Fund investment is excluded from tax altogether if the asset is held for 10 years or more. 

  • The Treasury in June designated more than 8,700 low-income census tracts in the United States, Puerto Rico, and territories as qualified Opportunity Zones. (IRS Notice 2018-48 and Roundtable Weekly, June 22) 

Certain elements of the Proposed Regulations may be relied upon immediately, whereas others will take effect when final regulations are issued.  Comments are due 60 days after the proposed guidelines are published in the Federal Register, and a hearing will be held on January 10, 2019.

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Congressional Lame Duck Session Could Consider Condominium Tax Accounting and Other Real Estate Tax Policy Issues   

Following the Nov. 6 mid-term elections, a “Lame Duck” session of Congress is expected to consider various tax policies of importance to commercial real estate.   

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Several tax issues of importance to real estate may be in play during the November "Lame Duck" congressional session, including condo tax accounting rules; technical corrections; the cost recovery period for qualified improvement property (QIP);and tax extenders.

  • As part of a potential year-end omnibus spending bill to fund the government, tax policies that may be addressed include condo tax accounting rules; technical corrections; the cost recovery period for qualified improvement property (QIP); and tax extenders.  (Roundtable Weekly, Oct. 12) 

  • Current condo tax accounting rules require multifamily developers of buildings with five or more residential units to recognize income and pay tax on their expected profit as construction is ongoing — well before pre-sale transactions are closed and full payment is due from the buyer.  This mismatch of cash flow and tax liability prevents income tax deferment until a condo building is finished.   Home builders of single-family homes, townhouses and row houses are not subject to this accounting rule restriction. 

  • A House bill introduced last summer by Reps. Carlos Curbelo (R-FL) and Joe Crowley (D-NY) aimed to correct this disparity.  Although the Fair Accounting for Condominium Construction Act (H.R. 3659) stalled in 2017, it could serve as a template for inclusion in year-end tax legislation.  The Real Estate Roundtable supports lawmakers' efforts to pass H.R. 3659

  • Other congressional efforts to ensure that development accounting rules treat condos like other residential construction included a 2016 letter from 10 members of the Senate Finance Committee urging regulatory corrections to former Treasury Secretary Jack Lew. 

  • Roundtable President and CEO Jeffrey DeBoer on April 7, 2017 sent a letter to Treasury Secretary Steven Mnuchin   outlining eight regulatory actions the Treasury Department could take to stimulate new real estate investment, job creation, and economic growth.  Among the recommendations addressed in the letter are tax accounting for new condominium construction; the Foreign Investment in Real Property Tax Act, tax treatment of private real estate funds and partnership tax rules. 

Last week, an article on the condo tax accounting issue in The Real Deal included a quote from Roundtable Senior Vice President & Counsel Ryan McCormick, who commented on the outlook for correcting the current rules.  "Legislation may be the most likely route, in light of all the work ongoing at Treasury with tax reform," McCormick said.

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Commercial Real Estate Industry Pioneer Marshall Bennett  

The commercial real estate industry mourns the recent passing of real estate industry icon Marshall Bennett.  He was 97.  (Chicago Tribune, Oct. 16)

Marshall Bennett

Commercial real estate industry icon Marshall Bennett passed away this week at the age of 97.

  • Marshall Bennett was one of the most successful real estate developers in Chicago and a pioneer of the modern industrial park.  In 1946, Bennett and Louis Kahnweiler, with financial backing from Jay Pritzker, launched Centex Industrial Park in the 1950s on more than 2,000 acres in Elk Grove Village—opening up the O'Hare submarket to large, industrial properties. This facility would become the nation’s largest and serve 1,500 companies. Throughout their partnership, Bennet and Kahnweiler amassed a portfolio of 26 industrial parks around the country. (RE Journals, Oct. 16)
  • Among his many accomplishments, Bennett was a World War II Navy veteran; was inducted into the Chicago Board of Realtors Hall of Fame in 1989; and served on the board of the East-West Institute global think tank. He also co-founded the Chicago Ten, an interfaith group that worked for peace in the Middle East.

Notably, Bennett co-founded Roosevelt University’s Marshall Bennett Institute of Real Estate in 2002. He helped raise $11 million to start the school as a training ground for real estate professionals. Since its inception, the program has graduated almost 325 in two master’s degree programs. (Crain’s Chicago Business, Oct. 15)

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For questions about Roundtable Weekly, please contact The Roundtable's Scott Sherwood at rweekly@rer.org or (202) 639-8400.

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