Tax Update (February 25)
The fate of the opportunity zones bill pending before the Puerto Rico legislative assembly remains uncertain. The bill would grant exemptions to U.S. residents investing in opportunity zones on Puerto Rico’s local capital gains tax, building projects, tax-free dividend distributions, and allow for an expedited permitting process for special projects. If the bill does not pass, Puerto Rico could lose potential investors looking to fund real estate projects on the island.
Hurricane Maria’s devastation has created a high demand for investment across the island as it seeks to repair its infrastructure. The passage of the bill would give the island access to the same tax benefits from opportunity zones created through the 2017 Tax Cuts and Jobs Act (TCJA), but current Puerto Rico laws would make investors pay a local capital gains tax, which would likely deter investors.
The deadline for investors to move eligible capital gains into opportunity funds is rapidly approaching, which states that to qualify, the gains must be moved into opportunity zones within 180 days of being realized, with potential investment opportunities expiring daily on the island.
The bill would also guarantee exemptions on building projects, tax-free dividend distributions, and expedited permitting for special projects that satisfy a panel—an additional hurdle that has some investors concerned about long wait times.
This week, the Internal Revenue Service (IRS) released final regulations implementing the centralized partnership audit regime. These final regulations affect partnerships for taxable years beginning after December 31, 2017 and ending after August 12, 2018, as well as partnerships that make the election to apply the centralized partnership audit regime to partnership taxable years beginning on or after November 2, 2015, and before January 1, 2018.
New York State residents who own a co-op could potentially take the full deduction for their property taxes. Republicans efforts to limit people taking deductions for local taxes allowed them to overlook the fact that co-op owners get their property tax breaks through their own special section of the tax code — an omission that some lawyers now say leaves those deductions effectively uncapped.
The omission is one of many corrections Republicans sought to fix in the TCJA during the lame duck session of the 115th Congress. Gov. Andrew Cuomo (D-NY) met with President Donald Trump last week on the issue, though there is little prospect of lawmakers adjusting the cap anytime soon. Prior to the meeting, a spokesperson for Senate Finance Committee Chairman Chuck Grassley (R-IA) warned that Grassley “won’t be revisiting the SALT deduction” so long as he’s running the tax panel.
Grassley/Brady Tax Op-Ed
Sen. Grassley and Rep. Brady penned an op-ed in USA Today this past Wednesday (Feb. 20) stating “lower tax refunds don’t mean taxes are higher.” The pair stated that average tax refund sizes vary from year-to-year and that certain widely-claimed credits have yet to be issued. To read the op-ed in its entirety, click here.
House Budget Committee Hearing
The House Budget Committee will hold a hearing at 10 am on February 27 on the TCJA’s impact on the budget and American families. For more details on this hearing, click here.