Real Estate implications of interest deduction limits

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January 2019

Overview

The 2017 tax reform act set forth new interest expense limitation rules (‘new Section 163(j)’), revising the previous limitations in Section 163(j) (‘old Section 163(j)’). On November 26, 2018, the Treasury Department and the IRS issued proposed regulations under new Section 163(j). The IRS also issued two Revenue Procedures that affect interest deductibility and real estate. On November 26, 2018, the IRS issued Rev. Proc. 2018-59, providing a safe harbor allowing taxpayers to treat certain infrastructure projects as real property trades or businesses solely for purposes of qualifying as an electing real property trade or business under Section 163(j)(7)(B).  On December 21, 2018, the IRS issued Rev. Proc. 2019-08, which, among other things, described certain rules related to basis adjustments for taxpayers that elect to treat a business as a real property trade or business. This Insight focuses on the aspects of the new guidance as they affect the real estate industry.

The takeaway

While the proposed regulations provide welcome clarity, they are extremely complex. Real property businesses should carefully examine the application of these regulations and other guidance to their specific facts to determine whether to what extent they are eligible to be treated as a real property trade or business that would allow them to be exempt from the rules.

See also:

PwC Tax Insight: Proposed regs under Section 163j: Application to the Asset and Wealth Management industry

PwC Tax Insight: Proposed rules issued on modified interest expense limitations

PwC Tax Insight: Preliminary highlights of the proposed regulations under Section 163(j)

PwC Tax Insight: First guidance under amended interest expense limitation clarifies high-profile issues

Tax reform readiness: New US interest expense limitation

PwC Tax Insight: Congress gives final approval to tax reform conference committee agreement

PwC Tax Insight: Proposed revisions to US tax code would significantly impact inbound companies

PwC Tax Insight: Republican tax bill will significantly impact US international tax rules

Contact us

Adam Feuerstein

Principal, National Real Estate Tax Technical Leader, PwC US

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