Webinar Recap: Q4 To-Dos for Business and Commercial Real Estate
The run-up to the close of the year is further complicated in 2020 by continuing COVID and political uncertainty. In our latest webinar, we spoke with Harold Speer, shareholder at Hellam Varon, about tax considerations for this year and beyond.
Here's a review of critical to-dos to check off your list in the next few weeks.
Government Orders Update
Government orders and moratoria continue to evolve in all jurisdictions. The statewide ban on evictions has been extended to December 31, 2020. Remember that King County’s ordinance requires landlords and property managers to establish a reasonable repayment plan to all commercial tenants in writing. And Seattle’s Ordinance 126116 prohibits landlords from holding certain individual guarantors, and small business and nonprofit tenants personally liable for rent and other expenses.
Q4 To-Dos:
Put repayment plans in place now with at-risk tenants so you can act swiftly if you need to pursue proceedings.
Prepare for a higher administrative burden for affidavits to proceed with collections and evictions.
Schedule a call with your attorney to go over the latest orders and if/how they impact you.
Tax, Investment & Financial Considerations
There are always a lot of money-related decisions that need to be made before year-end. This year, thanks to COVID and the potential of a transfer of power in Washington, there’s more to consider.
Joe Biden has also been consistent on making taxes more equitable, including reinstating the top federal income tax rate and raising the capital gains tax from its current rate of 15%. These changes could be material depending on your income level.
Regardless of who’s in the White House, the tax cuts of 2017 will expire in 2025, and the impact on estate taxes will be significant. Currently, you can gift $11.4 million per person and not pay a dime of estate tax to the government. In 2025, it will revert to $5 million with a likely adjustment for inflation.
Domestic C Corps with less than net $50 million assets in the enterprise should investigate whether they are eligible for qualified small business stock certification. Investors who hold their stock for 5 years or more can sell and not pay tax on up to $10 million worth of the gain or 10 times their basis in the investment, whichever’s greater.
A key consideration for LLCs is the 2019 eradication of the tax matters partner designation. LLCs must now designate a partnership representative, who has the authority to bind the LLC and all its members to decisions the PR reaches with the IRS. If you don’t designate a PR, the IRS can choose one for you.
There’s been some chatter among real estate investors about a Biden administration jettisoning the 1031 Exchange. That's the provision that enables investors to avoid paying capital gains taxes when selling one investment property and reinvesting the proceeds within certain time limits in a property or properties of a similar type and equal or greater value. The likelihood of that is low, however, given the struggles in the commercial sector and the slowdown in community investment. And even if the option were deleted, it would be months, maybe longer, before the decision was implemented.
Finally, banks are beginning to process PPP loan forgiveness requests. You have 10 months after the 8- or 24-week period ends before you have to seek forgiveness. As currently written, if you apply for and receive forgiveness in 2020, you won’t be able to take a deduction for the expenditures you made with PPP funds. That means your income will rise. It may make financial sense for you to absorb some more income this tax year, but if it doesn’t, you’ll want to defer application and see what changes to the program come down in the next relief bill.
Q4 To-Dos
Talk to your investment advisor and CPA about potential 1031 transactions for 2021.
Consult your investment advisor, CPA and attorney about capital gains and other potential tax changes so don’t make decisions that could harm you down the road.
A call with your estate planner if you're inclined to gift over the next few years because you may want to do it before 2025.
Amend your LLC and partnership operating agreements stating that if you’ve designated a tax matters partner that person should be interpreted as a partner representative instead.
Get a QSBS certification for your business.
Ask your business banker and accountant for advice on when to seek PPP forgiveness
The Look Ahead
The push to year-end close is always hectic. This year, processes may take longer and procedures and policies may change. The sooner you can check these critical tasks off your list, the less stress and rush you have to deal with.
For more details on any of these factors, watch the full webinar below.
If we can help with any of your to-dos, please contact us! To reach Harold and his team, email hspeer@hellamvaron.com or on his website.
