BPM's Real Estate Insights 2019 Volume 01 | Page 9

expanded to include qualified improvement property and other improvements to nonresidential real property, such as roofs, HVAC, fire protection systems, alarm systems and security systems. 7. Carried Interest Limitation The new carried interest limitation requires a three year holding period to treat the gain from the sale of applicable partnership interests as long term capital gain. Applicable partnership interests are partnership profit interests issued to taxpayers, such as investment managers, for the performance of services, such as asset management. This is generally referred to as a carried interest. If the carried interest, or the underlying asset generating the gain, is held less than three years, it will be treated as short term capital gain, which is taxed at ordinary income tax rates. As of now, real estate used in a trade or business is excluded from this rule. Carried interests held by C-corporations are also excluded. 8. Excess Business Losses Beginning in the 2018 tax year, excess business losses are limited to $500,000 for joint returns. This is determined after passive activity and at-risk limitations. Previously, taxpayers could use business losses in their entirety to offset nonbusiness income, such as ordinary wages or capital investments. Any losses in excess of $500,000 will be carried forward. Summary The application of these changes is complicated. There is uncertainty surrounding many of these provisions. And, to top it off, California has not adopted any of these changes. We would urge our readers to work closely with their tax advisers this tax season. n Helen Moulis is a Tax Director at BPM. Contact Helen at [email protected] or 925-296-1092. BPM Real Estate Insights 9