04/24/2014 | By Allen Kenney
Sandy Presant, chair of the real estate fund practice at law firm Greenberg Traurig LLP, joined REIT.com for a video interview during REITWise 2014: NAREIT’s Law, Accounting and Finance Conference held in Boca Raton, Fla.
Presant was asked about current tax reform proposals being discussed on Capitol Hill and what they might mean for REITs.
“The two sets of proposals that have come out, even though they are very well thought-out, they just really overreach,” Presant replied. In particular, he criticized the proposal to take away all tax deferral associated with like-kind real property exchanges.
“REITs grow and die, so to take the growth out of REITs by taxing it at an inappropriate time just doesn’t make sense,” Presant said.
Presant stressed that like-kind exchanges are “simply reorganizations of real estate” and to discourage them would limit the economic growth that is triggered by real estate transactions.
Turning to proposed changes to the Foreign Investment in Real Property Tax Act (FIRPTA), Presant cautioned against imposing tough regulations that would impede cross-border investment in the United States. While proposed FIRPTA changes would liberalize the rules for foreign pension plans investing in the U.S., they would also eliminate the portfolio interest exemption, which is key to money coming in from places like China and the Middle East, Presant explained: “So that’s a bad decision.”
Presant also took issue with proposals to extend depreciation lives to “unrealistic levels.” The proposals represent “a revenue raiser on the back of the real estate industry,” according to Presant.
Presant also commented on the impact of Internal Revenue Service (IRS) regulations on UPREITs. He explained that the regulations affect how the tax basis is allocated across partners. Typically with UPREITs, he said, tax gains are not recognized until the REIT shares are sold.
“If you have a negative capital account, if you have debt in excess of your tax basis, these regulations will prohibit you from contributing [assets] to a partnership because over time, you’re going to be required to recognize gain,” he said.