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Thursday, May 20, 2010

Help Prevent New Tax Burdens on Real Estate

Background on Landlord:
Congress proposes that ANYONE who receives rental income will be required to file IRS Form 1099 reports if they make payments to any contractor (such as plumbers, HVAC repairmen, lawn services and the like) if they pay the contractor $600 or more in any particular year. Small landlords no doubt receive other Forms 1099, but may have little experience in actually filing them with the contractors and the IRS. The proposal is a trap for the unwary because they would be exposed to penalties if they fail to file these reports.

Background on Carried Interest:
Congress is considering taxing "carried interest" at ordinary income rates instead of capital gains. Currently, carried interests are taxed as capital gains (at 15%). Carried interest is the share of profits paid out as compensation to a general partner in a limited partnership or limited liability corporation. Forty-six (46) percent of partnership tax returns in 2005 were tied to real estate, according to the Institute of Real Estate Management (IREM). A carried interest is often provided to partner(s) providing the day-to-day management and operation of the partnership and its asset(s). The carried interest usually takes the form of a payment of a specific part of the profits generated when a property is sold, over and above the regular compensation

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