Taxation on Real Estate Conference - Virtual-5 - Larvick - Partnership-Taxation-with-Focus-on-Real-Estate

5 - Larvick - Partnership-Taxation-with-Focus-on-Real-Estate

Pdf Summary

This presentation provides an overview of U.S. partnership taxation with a real estate focus. It explains that partnerships generally are not taxed at the entity level; instead, partners are taxed on their distributive shares of income and loss. Core contribution and distribution rules are covered, including IRC 721 nonrecognition for property contributions, IRC 722/723 basis rules, and IRC 704(c) treatment of built-in gain or loss.<br /><br />A major topic is contributions of encumbered property and how liabilities affect partner basis under IRC 752. The presentation also addresses disguised sale rules under IRC 707, including the facts-and-circumstances test, the two-year presumption, exceptions for guaranteed payments, preferred returns, operating cash flow distributions, preformation expense reimbursements, qualified liabilities, and debt-financed distributions.<br /><br />The second section focuses on allocations and distributions. It distinguishes between distributive share and actual cash distributions, and explains the difference between “safe harbor” allocations under section 704(b) and “target allocations.” It also covers substantial economic effect, capital accounts, liquidation mechanics, and partner’s interest in the partnership (PIP). Tax distribution provisions are discussed as a practical drafting issue for real estate partnerships.<br /><br />The presentation then reviews promote structures and the impact of IRC 1061, which can recharacterize certain long-term capital gains as short-term if linked to an applicable partnership interest. It also explains basis planning and debt-financed distributions, including the effect of liability allocations on tax basis.<br /><br />Additional topics include investor-versus-dealer classification, relevant real estate safe harbors, and loss limitations. These include basis limits under IRC 704(d), at-risk limits under IRC 465, passive activity loss rules under IRC 469, and special rules for real estate professionals.

Keywords

U.S. partnership taxation

real estate partnerships

IRC 721

IRC 752 liabilities

disguised sale rules

section 704 allocations

substantial economic effect

tax distribution provisions

IRC 1061 promote structures

loss limitation rules