Stephen Giordano, principal-Washington National Tax at KPMG LLP, participated in a video interview in conjunction with REITwise 2021: Nareit’s Law, Accounting & Finance Conference.
Giordano discussed some of the tax issues that REITs may need to resolve as they continue to improve the energy efficiency of their properties, including the use of green subsidies and incentives.
“The first challenge is even being able to use the subsidy as it’s intended,” Giordano said. REITs, by design, often don’t have the taxable income necessary to use federal tax credits. State and local tax incentives, meanwhile, present different difficulties, he said.
Giordano also commented on the 2017 tax reform law, which limited the deductibility of interest under Section 163(j), and some of the outstanding issues in that area for REITs.
The question REITs primarily face is whether to opt out of 163 (j), Giordano explained. “That’s an important choice because once the election out is made, it’s irrevocable.” The decision is closely linked to depreciation decisions, he said, and where REITs are going to deploy their capital. Modeling, and getting the numbers right, is key, he added.
Meanwhile, Giordano discussed tax increment financing and some of the tax implications for REITs specifically in connection with this type of financing.