LIST OF SUBSTANTIVE CHANGES AND ADDITIONS. PPC s Guide to Real Estate Taxation. Twenty-first Edition (June 2015)

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1 Route To: j Partners j Managers j Staff j File LIST OF SUBSTANTIVE CHANGES AND ADDITIONS PPC s Guide to Real Estate Taxation Twenty-first Edition (June 2015) Highlights of this Edition The following are some of the important update features of the 2015 edition of PPC s Guide to Real Estate Taxation. Expired Internal Revenue Code Provisions. Various tax provisions expired at the end of 2014 but may be extended to These items include the increased Section 179 deduction; additional first-year bonus depreciation; 15-year recovery period for qualified leasehold improvements, retail improvements and restaurant property; and several tax credits. These expired provisions have been highlighted in this edition of the Guide. Guidance on Accounting Method Changes Required to Comply with the Tangible Property Regulations. The Guide has been updated for coverage of revenue procedures issued in 2015 that supersede existing guidance on making accounting method changes. Also, a qualified small taxpayer exception allows certain taxpayers to make the required accounting method change to comply with the tangible property regulations without filing Form Court Ruling in Howard Hughes Case. The impact of a recent Tax Court ruling was discussed that provides information on the definition of a qualified homebuilder for purposes of the completed contract method. Recent IRS Guidance and Court Decisions That Impact Real Estate Professionals and Transactions. Revised discussions for recent IRS guidance and court decisions that impact real estate professionals and real estate transactions. Choice of Business Entity. Several new appendixes were added that provide summarized details for determining the most beneficial type of entity to use when starting a real estate business. Chapter Substantive Changes and Additions Reference CHAPTER 1 Overview 1. Revised discussion for recent trends in real estate values and businesses and the implications for tax practitioners advising clients in light of these developments. Section 102 trep15sub 1

2 Chapter CHAPTER 2 Form of Ownership CHAPTER 3 Acquisition of Real Estate CHAPTER 4 Subdivision and Development CHAPTER 5 Operations and Leasing Substantive Changes and Additions Reference 1. Reformatted chapter to make the discussion more concise Throughout and added the following new appendixes: SE and FICA Tax Treatment of Pass-through Income Appendix 2B and Owner Wage Payments Major Advantages and Disadvantages of Each Entity Appendix 2C Summary of Available Corporate Entities Appendix 2D Summary Comparison of Various Partnership/LLC Entities Appendix 2E Comparison of Forms of Concurrent Ownership in Appendix 2F Common Law States 1. Expanded the discussion regarding the holding period rule of special use valuation property. 2. Updated discussion for new accounting change method procedures for taxpayers implementing cost segregation studies. 3. Noted June 2014 revisions to the Circular 230 rules regarding written tax opinions that include cost segregation studies prepared by practitioners. 4. Updated the discussion for the expiration of the higher limit for Section 179 deductions starting in Updated transaction cost guidance for tax treatment of success-based fees and alerted readers to a safe harbor election available for these fees. 2. Expanded the discussion regarding the treatment of common improvement costs made to land. 3. Updated the discussion on rules addressing partnership transactions involving contracts accounted for under a long-term contract method. 4. Included recent Tax Court case decision where the taxpayer did not meet the definition of a qualified homebuilder for purposes of the completed contract method. 5. Noted the issuance of proposed regulations dealing with taxpayer-initiated accounting method changes. 6. Added a new sample election for real estate developers to use the alternative cost method for common improvements. 1. Updated guidance for recent revenue procedures related to the tangible property regulations, including those governing dispositions and partial dispositions of MACRS property. 2. Discussed a Chief Council Advice that lump sum reimbursements for improvements were not deemed to be rental income to a lessor. Section 302 Section 303 Section 303 Section 303 Section 401 Section 402 Section 405 Section 407 Section 411 Appendix 4A Section 505 Section 506 2

3 Chapter CHAPTER 6 Limitations on Real Estate Losses CHAPTER 7 Dispositions of Real Estate CHAPTER 8 TaxDepreciationand Credits CHAPTER 9 Personal Residences Substantive Changes and Additions 3. Included a table of the elections available under the tangible property regulations and the procedural requirements for making these elections. 1. Updated guidance for final regulations providing that basis in debt is derived from any bona fide indebtedness of the entity that runs directly to the interest holder. 2. Mentioned a recent Chief Council Advice in which the IRS found that the guarantor of LLC debt may be at risk for such debt even if the guarantor does not waive rights of subrogation and reimbursement. 3. Discussed recent IRS guidance on real estate professionals who bring together buyers and sellers qualifying for the real estate professional relief provision. 4. Explained a recent Chief Council Advice for taxpayers electing to combine rental real estate activities under the single activity election of Reg (g). 5. A recent court case is included that clarifies the original return filing requirement of the single activity election of Reg (g). 1. Expanded installment sale discussion for ineligible transactions. 2. Discussed the Balsam Mountain ruling regarding the ability to deduct a contribution of a qualified real property interest. 1. Included recent IRS guidance regarding changes to automatic accounting method procedures to comply with the tangible property regulations (Rev. Procs , and ). 2. Expanded discussion of property eligible for additional research or minimum tax credits, in lieu of bonus depreciation, for 2015 and 2016 (long-production period property). 3. Noted Stine case where placed-in-service date for a retail store building was based on the building s ability to perform its intended function, despite certificates of occupancy that did not permit customers in the building. 4. Discussed recent IRS guidance on the availability of the low-income housing credit when a tenant s income exceeds required limits. 1. Discussed recent IRS guidance related to the deductibility of qualified residence interest for a property co-owned by two taxpayers. 2. Included the discussion of a court decision regarding the inclusion of days spent performing repairs on a vacation home as days of personal use. Reference Appendix 5H Section 601 Section 602 Section 608 Section 608 Section 608 Section 707 Section 715 Section 801 Section 801 Section 801 Section 811 Section 902 Section 906 3

4 Chapter CHAPTER 10 Estate Planning Substantive Changes and Additions 1. Added a comment that holding an asset until death may be more beneficial than gifting the asset. 2. Included an observation about financing charges to related parties to avoid the imputed interest rules. Reference Sections 1001, 1006 Section

5 Route To: j Partners j Managers j Staff j File P.O. Box Carrollton, TX Tel (972) (800) Fax (888) tax.thomsonreuters.com Dear Subscriber: Enclosed is your copy of PPC s Guide to Real Estate Taxation. We are sure the latest edition of this Guide will be an indispensable tool for your real estate planning engagements. Please take a few minutes to familiarize yourself with the contents and layout of the Guide. Timeinvestednowwillsaveyouvaluabletimelater. Ourcommitmentistoprovideyouwiththebest possible guidance. To accomplish this, our authors and editorial staff constantly monitor legislative, judicial, and administrative developments. The following are some of the important update features in this edition of PPC s Guide to Real Estate Taxation: Expired Internal Revenue Code Provisions. Various tax provisions expired at the end of 2014 but may be extended for These items include the increased Section 179 deduction; additional first-year bonus depreciation; 15-year recovery period for qualified leasehold improvements, retail improvements and restaurant property; and several tax credits. These expired provisions have been highlighted in this edition of the Guide. Guidance on Accounting Method Changes Required to Comply with the Tangible Property Regulations. The Guide has been updated for coverage of revenue procedures issued in 2015 that supersede existing guidance on making accounting method changes. Also, a qualified small taxpayer exception allows certain taxpayers to make the required accounting method change to comply with the tangible property regulations without filing Form Court Ruling in Howard Hughes Case. The impact of a recent Tax Court ruling was discussed that provides information on the definition of a qualified homebuilder for purposes of the completed contract method. Updated IRS Guidance on Qualifications for the Real Estate Professional Relief Provision of IRC Sec. 469(c)(7). Recent IRS guidance discussed the ability of real estate professionals who bring together buyers and sellers qualifying for the real estate professional relief provision. Choice of Business Entity. Several new appendixes were added that provide summarized details for determining the most beneficial type of entity to use when starting a real estate business. We hope you are pleased with PPC s Guide to Real Estate Taxation. If so, you only need to file your Guide according to the enclosed Filing Instructions and pay the invoice. If for some reason you decide not to accept this publication, return it to us within 30 days of receipt, and we will cancel your subscription. Thank you again for subscribing to PPC products. Sincerely, BlakeT.Smith,CPA Senior Director of Product Development Tax Publications trep15genltr

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7 YOUR SHIPPING PACKAGE INCLUDES: 1. A letter to subscribers. 2. One shrink-wrapped package containing the text. New subscribers also receive: 1. One binder with inserted cover and spine. 2. One shrink-wrapped package of tabs. Existing subscribers also receive: FILING INSTRUCTIONS PPC s Guide to Real Estate Taxation Twenty-first Edition (June 2015) 1. A list of Substantive Changes and Additions to be filed at the front of the Guide binder. TO FILE PPC s Guide to Real Estate Taxation: 1. If you already have the previous edition, remove the text from your binder and discard, but save the tabs. 2. Insert the new text into the binder. File the tabs behind the chapters listed below. 3. If any parts of your Guide are missing or if you have questions about filing, call our customer service department at (800) Your Twenty-first Edition of PPC s Guide to Real Estate Taxation is now ready to use. Placement of Tabs trep15genfin Tab Description File Behind 100 OVERVIEW Introductory Material 200 FORM OF OWNERSHIP Chapter ACQUISITION OF REAL ESTATE Chapter SUBDIVISION AND DEVELOPMENT Chapter OPERATIONS AND LEASING Chapter LIMITATIONS ON REAL ESTATE LOSSES Chapter DISPOSITIONS OF REAL ESTATE Chapter TAX DEPRECIATION AND CREDITS Chapter PERSONAL RESIDENCES Chapter ESTATE PLANNING Chapter 9 FINDING LISTS AND INDEX Chapter 10 CPE INFORMATION Finding Lists and Index

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