Real property trade or business election

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Message Board Real property trade or business election

This topic contains 4 replies, has 3 voices, and was last updated by William Dewberry 2 months ago.

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  • #147881

    If a new in 2018 residential rental limited partnership makes the real property trade or business election (to get out of the lovely syndicate as a safe harbor trap), what does that do to California? For Fed we are now depreciating real property over the new 30 year ADS life, but what about for California?

  • #148092
    Lynn Freer

    The safe harbor election has no bearing on CA so you would continue to depreciate as before. sorry I’m not familiar withe the rules for syndicates.

  • #148142
    William Dewberry

    The way I handled this was to input all the real property into the depreciation schedule as normal, using
    the usual 27 1/2 year life, for both fed and ca; then I input the election into the software and the software converted the federal to ADS and Ca was unchanged.

  • #148301

    Thanks William and Lynn,

    Question 24a on Form 1065,  to claim the small business exception to 163j limitation of business interest deduction, have to have aggregate average annual gross receipts for the past 3 years of < $25M  (no problem) and the partnership is not a tax shelter.  There are 3 definitions of tax shelter including a “syndicate” under Sec. 1256. Section 1256(e)(3)(B) defines a syndicate as “any partnership or other entity (other than a corporation which is not an S corporation) if more than 35% of the losses of such entity during the taxable year are allocable to limited partners or limited entrepreneurs.”  Well that is all of our limited partnerships, so for any of them which have a loss, we can’t use the small business exception, so we either make the RPTB election (ugly, and permanent) or limit interest expense deductions. Talk about a rock and a hard place!  Not a happy camper, and neither are our partners.

    How are the rest of you handling this?


  • #148302
    William Dewberry

    You really have only two options, which you already have defined; when I recalculated the depreciation it was not a big difference, a much better option than disallowing the interest expense.