2003-03-12 CC Packet - Laserfiche WebLink

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'.'...1":_1. L.Li , . : activities. They may not be used to Exemption from Passive Ac:tivity III the lease term exceeded 20 years; offset such income or taxes from Rules for Full-TIme Real Estate II the lease occurred after the saie of previous years. Practitioners the property by,or the property was There is an exception to these rules that In the 1993 changes in the federal tax leased from, the tax-exempt entity e assists rehabilitation projects. Investors code, those involved full time in real (sale-leaseback situation); who are eligible for the rehabilitation or estate activities became exempt from III the lease included an option to for the low-income housing credits may the passive activity loss ~tations. purchase or sell the property at a use these credits to offset the taxes owed Now full-time real estate developers, fixed or determinable price; or on a maximum of $25,000 of non-passive brokers, property managers, and other . activity mcome. real estate professionals may offset. IliB part 'or au of the property was their earnings from salary or commis- financed, directly or indirectly, by a This exception applies to rehabilita- sions with losses generated by invest- tax-exempt obligation, and the tax- tion and low-income housing credit ment real estate. This also means that exempt entity (or a related entity) projects regardless of the investors' more than the $9,000 per year of the participated in the financing. relation to the project. Limited rehabilitation credit may be available partner investors need not be actively to taxpayers in the real estate business. However, even if one or more of these involved in management or decision Individuals who believe they may tests were met, the tax credit could still making to qualify. Under this excep- qualify for this exemption from passive be taken if the total percentage of space tion, rehabilitation and low-income loss provisions should consult their leased by tax-exempt entities under a housing credits, but not deductions tax counse.I. disqualified lease is less than 35 percent ~ from these projects, may be used to of the "net rentable floor space" of the offset the taxes 'owed on up to $25,000 Rehabilitations Involving property. . The net rentable floor space of non-passive activity income. Thus, Tax-Exempt Entities of a building does not include the for a taxpayer in the ~6 percent common areas. Furthermore, even if a marginal tax bracket" $9,000 of the When all or portions of the rehabilitated disqualified le~e exists and more than combined total of low-income and property are used by governments or 35 percent of the space is occupied by rehabilitation credits may be used in a nonprofit organizations there may be a tax-exempt entities, the tax credit is '. single year under the passive loss limitation on the use of the tax credit. still available to the expenditure attrib- exception provision. This benefit utable to the balance of the space. phases out for taxpayers with adjusted . In general the tax credit may not be gross incomes (determined without taken on that portion of the expenditure Alternatively, even if more than 35 regard to deductions from passive attributable to space oqcupied under a percent of th~ net rentable floor space activities) between $200,000 and "disqualified lease:." A disqualified were occupied by a tax-exempt entity $250,000. Taxpayers with adjusted lease would be one with a govemmen- . but none of the disqualified lease tests gross incomes greater than $250,000 tal or nonprofit organization if any of app~ied, the tax credit would be fully are not eligible for this exception. following tests were met: available. Builtin 1925, tile Mo1"lison Knutisllft Depot in Boise, ldoho, was restored using the im;estment tfJX credit. e. II