Property industry hit by new Treasury regs

Real Estate Weekly, Feb 19, 1992

In 1991, the Treasury Department issued an unusually large number of regulations that have a significant impact on the real estate industry, according to Philip J. Wiesner, director of real estate tax services, KPMG Peat Marwick's national real estate practice, based in Washington, D.C.

Not only was guidance issued with respect to "disguised" sales of property, the allocation of partnership liabilities, and the passive loss self-charged interest, but also with respect to the capitalization of construction period interest, he said.

While many of these regulation contain safe harbors that will facilitate transaction, the interest capitalization regulation contain some very complex and strongly anti-taxpayer rules, he added.

In particular, the definition of when the construction period begin, when the construction period ends or is suspended when combined with the broad concept of avoided interest will result in the capitalization of interest such that taxable income will be accelerated for many developers before any cash is generated, he pointed out.

"Unless the IRS hears from you, these regulation will probably be finalized as is," he said. "Please note that although the hearing was held on Nov. 20, it is not too late to express your displeasure with these regulation by writing the IRS National Office. Do so today!" *On the legislative front, more than five years after the 1986 Act debacle for the real estate industry, Senate Minority Leader Robert Dole of Kamas has formed a seven member panel to review the problems of the real estate industry. Better late than never, I guess *Also on the legislative front: Once again, in spite of some recent encouraging signs - especially overwhelming industry and Congressional support - H.R. 1414 which would provide some relief from the passive loss rules for real estate entrepreneurs appears destined not to be enacted. The stumbling blocks remain an appropriate legislative vehicle and how to pay for the relief. Unfortunately, even if H.R. 1414 were enacted this year, it may be too late to provide any meaningful tax relief for the real estate industry.