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The Real Estate Services Blog is published by RubinBrown's Real Estate Services Group as a value-added approach keeping clients and contacts informed about current, relevant topics affecting the real estate industry.



03/14/2019

Tax Savings Related To Opportunity Zones

 

RubinBrown Partner Tony Nitti authored an article on the tax ramifications related to opportunity zones. This article appeared in The Tax Adviser.


In summary, the article details that the newly created qualified opportunity zones offer an intriguing tax planning option for investors and a potential boon for distressed communities.


The Tax Adviser article discusses the tax rules regarding investing in qualified opportunity zones through qualified opportunity funds, including:

  • The Tax Cuts and Jobs Act enacted new Sec. 1400Z-2, which provides a number of benefits designed to encourage investment in areas in low-income communities that are designated as qualified opportunity zones (QOZs).
  • Under Sec. 1400Z-2, taxpayers may be able defer realized capital gains by reinvesting them in qualified opportunity funds (QOFs) that conduct or own trades or businesses with property and business activity within the QOZs. These deferred gains may then be partially excluded from gross income if certain holding requirements are met.
  • Taxpayers eligible to defer gains under Sec. 1400Z-2 include individuals, C corporations, passthrough entities, and trusts and estates. Gain that is eligible to be deferred is gain that is “treated as capital,” would be recognized for federal income tax purposes before 2027, and does not arise from a sale or exchange with a related party.
  • Generally, within 180 days of a sale or exchange generating eligible gain, an eligible taxpayer may elect to reinvest all or a portion of the gain into a QOF, deferring its recognition until Dec. 31, 2026, or, if earlier, the date the taxpayer sells or exchanges the QOF interest.
  • Once the taxpayer holds the QOF interest for a five-year period, 10% of the deferred gain is permanently excluded. Once the holding period reaches seven years, an additional 5% of the gain is excluded. If the holding period reaches 10 years, the gain arising after the 2026 recognition date is entirely excluded.
  • QOFs must hold at least 90% of their assets as QOZ property, which includes QOZ business property (QOZBP), QOZ stock, or QOZ partnership interests.
  • Even with the release of proposed regulations under 1400Z-2, many practical questions remain for taxpayers who are considering an investment in a QOF.


For more information about the Tax Cuts & Jobs Act, or the related opportunity zones, please contact one of RubinBrown’s Real Estate Services Group professionals.

 

 

 

 

Focus on Taxation & Real Estate: Tax Savings Related To Opportunity Zones

02/27/2019

Hear the latest about Opportunity Zones at AHF Live Housing Developers Forum

modern-residential-houses
RubinBrown Partner Amy Broadwater will be presenting on an opportunity zone panel at the upcoming AHF Live Housing Developers Forum. The conference attracts developers, investors, financial experts, and other stakeholders from across the country to network and learn about trends in the affordable housing industry. This year’s conference is April 1-3 in Las Vegas, Nevada.

Amy has deep experience in the affordable housing industry, including deal structuring, tax consulting, and partnership taxation and has accepted speaking invitations at many different industry conferences across the country. Amy has been helping lead RubinBrown’s Opportunity Zone Initiative and has been involved with researching and consulting on opportunity zones since the program’s creation by the Tax Cuts & Jobs Act in December 2017. 

Click here to view Amy’s biography.

Click here to visit the AHF conference link.

 

 

 

 

02/20/2019

The Multi-Family Industry Grows Throughout 2017


REBlog-Condominium-Roofs.jpgThe multi-family industry continued to experience above-average performance in 2017.


There were 336,000 multi-family units completed in 2017, an increase over the 321,000 units completed in 2016. According to the Fannie Mae 2018 Multi-Family Affordable Housing Outlook, most new supply over the past few years has been focused in high-rent segments.


 Interestingly, there has been little growth in stock of affordable multifamily housing. Strong demand for multi-family rentals has prompted developers to renovate more affordable housing to higher-rent units.


The impact of the two trends has been that while the number of Class A units have grown by an estimated 1.1 million to 5.0 million total units since the end of the recession, the number of Class B/C units remained virtually unchanged at an estimated 5.7 million units (Reis, Inc.) We expect to see this trend continue as information on 2018 becomes available.


According to the Joint Center for Housing Studies of Harvard University, the number of multi-family units declined slightly over the past year and expanding supplies of new luxury apartments pushed up rental rates.


According to data from the National Council of Real Estate Investment Fiduciaries, net operating income for investment-grade multi-family properties in 2017 grew 3.4% from 2016.


In addition, the annual rate of return on rental property investments was 6.4% for 2017. Rental property prices and sales remain strong. Real Capital Analytics (a commercial real estate database which tracks prices for rental properties and portfolios of at least $2.5 million), reports that nominal apartment property prices rose at a 12% annual rate averaged in 2014 – 2017.


As a result, apartment prices now stand 30% above the mid-2000s peak in real terms.


 

 

 

 

02/13/2019

Vacancy Rates For Rentals On The Rise


According to the Joint Center for Housing Studies of Harvard University, the national vacancy rate for all rental units averaged 7.2% in 2017, an increase from 6.9% in 2016.


Meanwhile, according to the Fannie Mae 2018 Multi-Family Affordable Housing Outlook, vacancies for rent-restricted affordable housing properties remains historically low.


At the close of 2017, Reis, Inc. estimates a 1.9% vacancy rate for rent-restricted properties, which consist of multi-family rental properties assisted with federal Low Income Housing Tax Credits (LIHTC) and Section 8 project-based vouchers, reflecting the demand for all types of affordable multi-family rentals.

 

 

 

 

02/06/2019

New Tax Law & Affordable Housing


REBlog-Tax-Cuts-and-Jobs-Act.jpgThe Tax Cuts & Jobs Act (the Act) was signed into law at the end of 2017 and certainly has an impact on the affordable housing industry.


While tax reform left LIHTC intact; the decline in the corporate tax rate from 35% to 21% is expected to have negative consequences for new rent-restricted supply.


Tax credits are now less valuable and prices have declined since discussions on implementing a corporate tax cut began in 2017. Developers may struggle with new projects to fill the financing gap resulting from lower proceeds from investment in LIHTC due to this decline.


The Act allows investors to defer paying tax, up to nine years, on gains if those gains are invested in Qualified Opportunity Funds that in turn invest in economically distressed communities (known as opportunity zones) designated by the governor of each state.

 

 

 

 

01/30/2019

Millennials & Housing Trends


Demand for housing is driven primarily by an increase in household growth, which is expected to remain strong based on aging millennials and the overall population.


According to the Joint Center for Housing Studies of Harvard University, with a large portion of the millennial population now in its early 30s, adults under age 35 formed 10.5 million new households in 2012 – 2017, which is 1.5 million more than in the previous five-year period.


The millennial generation will continue to lift household growth for years to come.

 

 

 

 

01/16/2019

Senior Citizens & Housing Trends

 

REBlog-Elder-Couple-Just-Moved.jpgWhile the number of young adults impacting the housing demand will continue to grow, the older population is growing faster.


According to projections by the Census Bureau, the total U.S. population age 65 and older will reach 79 million in 2035. This represents an increase of 31 million over the same statistic in 2015.


The largest increase in the housing demand of older adults is expected to come from single-person households. A 2014 survey conducted by AARP indicated 88% of adults 65 and over want to remain in their homes as they age.


The decision of older households to age in place will require additional accessible housing with supportive services.

 

 

 

 

01/02/2019

Affordability of Housing

 

The strong demand for units is coupled with an affordability crisis.


According to the State of the Nation’s Housing 2017, only 31% of renters are able to afford the $1,550 median asking rent for a new apartment in 2017.


By comparison, in 1990 41% of renters could afford the $1,064 real median asking rent for new units. Supply of low-cost units has also decreased.


A Hudson Institute analysis found that 60% of low-cost units in 1985 were lost by 2013. As a result of the supply and demand imbalance, the affordable housing industry is expected to remain strong.


According to the Joint Center for Housing Studies of Harvard University, the long-term outlook for rental housing demand is positive as increasing numbers of millennials form new households and older households switch from owning to renting.


A 2016 National Low Income Housing Coalition study found that for every 100 extremely low-income renters, only 35 rental units were affordable and available which is a nationwide shortfall of more than 7.2 million units.


Conditions for very-low income renter households improved slightly with 56 affordable and available rentals per 100 households.


Additionally, there is tremendous demand for affordable housing among the nation’s 15.5 million very low and extremely low-income households. Conditions in the affordable market will continue to remain strong with strong demand and diminishing supply.