Real Estate 199A Aggregation and 469 Grouping Rules: Real Estate Professionals and Safe Harbor Election

Description

Practitioners have long dealt with grouping elections under Section 469 to meet the material participation rules and avoid passive loss limitations. However, this "grouping" election is irrelevant to the "aggregation" of properties under 199A. In other words, properties may be "grouped" one way to avoid passive loss limitations and "aggregated" another way to maximize the 20% deduction under 199A. Whether or not an election is made to aggregate, losses from QBI entities are allocated pro-rata to profitable entities, effectively lowering total income for the 20% deduction. Meeting the criteria for the aggregation election is complicated, but the payoff can be tremendous.

In addition to the complexities of QBI, there are 163(j) interest limitations and new depreciation rules brought about by the tax act. Additionally, determining the specific criteria for qualifying real estate as a trade or business under Section 162 remains uncertain. Real estate may be the practice area most significantly impacted by tax reform, but it is also an area with significant planning opportunities.

Listen as our panel of experts explains the complexities of new 199A safe harbor, its interplay with the grouping election under Section 469, the higher depreciation limits, changes to meals and entertainment, and the effects of these changes on real estate enterprises.