Real estate investment trusts are an investment vehicle that owns, operates or finances income producing real estate. A real estate investment trust, or REIT, can be a corporation, trust, or association that is managed by trustee(s) or director(s) to provide its investors a share of income produced through a real estate investment. While REITs are able to avoid the double taxation issue, they are required to distribute their taxable income as dividends to their shareholders in order to retain the status of a REIT.
Benefits of REITs
REITs provide their investors some favorable investment features. Collectively, REITs of all types own more than $3 trillion in gross assets in the United States. Public REIT funds that were raised in 2019 hit $107.3 billion, nearly twice of that in 2018 and 7% higher than the last peak in 2017. Therefore, it shows how REITs are able to raise ample amounts of capital in real estate investments. Additionally, REITs provide investors high dividends that increase accordingly with inflation rates. REITs offer its investors a reduction in the overall risk level according to a study by Ibbotson Associates, where they showed a correlation between REIT stock returns and other common stocks. It showed that REITs display a less volatile investment and may be a way to diversify an investor’s portfolio.
REIT Requirements
In order to meet the qualifications for REIT status, the entity must meet several requirements. The entity must:
- Be managed by one or more trustees or directors.
- Be a corporation, trust or association taxed as a domestic corporation.
- Be at least 100 shareholders and its shares must be freely transferable.
- Have no more than 50% of the stock owned directly or indirectly by five or fewer individuals during the last half of the taxable year.
As stated in §856, a REIT must also meet a 75% gross income and a 95% gross income test. In regards to the taxation of REITs, the dividends are taxable to the shareholder; however, if a REIT pays out more than its taxable income, the excess is a nontaxable return of capital that reduces the shareholder’s basis. In order to take advantage of a REIT, certain steps can be taken to minimize the REIT’s tax impact. As all items with tax implications, it is recommended to speak with an informed tax professional in order to fully understand the complexities of a REIT and minimize its tax impact.
If you have any questions about REITs, and their tax implications for you, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.
COVID-19 has enhanced both the work from home and schooling from home models. More and more people are looking at redesigning their current home and/or buying a new home due to lifestyle changes, and with employers encouraging the work from home concept, people are looking to migrate to the suburbs from city centers.
Let’s say you have been offered an attractive price for your current home. Over the years, you’ve probably put a ton of money into your home—that new roof in 2013, the deck you added in 2014, and the nightmare that was a kitchen remodel in 2017. While those costly improvements didn’t net you any tax benefits back when they were done, we hope you kept those receipts and records! We’ll get back to that in a bit.
Let’s say you purchased your home when the market was low, around 2012. Now you’re ready to sell and recoup your investment. Will there be a big tax bite on the gain? Probably not, if you’ve lived in the home as your primary residence for two of the last five years. If you meet this time requirement, your first $250,000 of gain (if single) or $500,000 of gain (if married—the rules are a little more complicated if there’s been a divorce) are not subject to federal income tax under current law. Also, this exclusion is available to take more than once, but not more often than every two years.
Back to our example, if you are single and managed to get a fantastic deal on your house (perhaps a foreclosure) in 2012 for $125,000 and were lucky enough to see your investment appreciate over the years and now you have been offered $399,000. That is a gain of $274,000 and doesn’t that put you over the exclusion? Not necessarily. This is where having your receipts and records from all those improvements comes in handy. Your basis (investment on which the gain is calculated) in the home includes your purchase price plus any improvements. Also, the costs associated with the sale (such as real estate commissions) are deducted from the sales price. Once you re-do the math with these additional figures, your gain could very well be below the $250,000 threshold and therefore, is tax-free as illustrated below:
Keep in mind that not all the money you put into your home “counts” as an increase to your basis. Normal repairs and maintenance (such as painting, fixing plumbing leaks, repairing broken steps) should not be considered. Nor should improvements that are no longer part of the home, such as wall-to-wall carpeting that you installed but later replaced with hardwood flooring. In that case, the hardwood flooring, but not the carpet, would be added to the basis. A common misconception is that you can include the value of your time for do-it-yourself projects, but this is specifically not allowed according to the tax laws (sorry, DIY-ers!). Items that can be included typically increase the home’s value, such as appliances that are left with the home upon sale, decks, flooring, additions, doors and windows, fences, siding, heating and air conditioning systems, driveways, security systems, and kitchen and bath modernizations.
If you meet the requirements for living in the home for two of the past 5 years, but your gain is above the $250,000/$500,000 limit, only the excess is subject to tax at preferential capital gains rates.
This represents a basic overview of the tax law as it applies to the sale of a primary residence. There are many situations that call for additional analysis in the year the home is sold, such as:
- The home was previously a rental property or used for business
- The home was received through a divorce settlement, gift or inheritance
- The homeowner meets an exception to the two-year rule
- The homeowner qualifies for a reduced exclusion
- The home was acquired through a like-kind exchange
- The homeowner had received any tax credits or subsidies that may be subject to recapture
Since a home is often the largest asset and most significant portion of a taxpayer’s net worth, this exclusion offers a meaningful tax break and acts as an incentive to homeownership. Keep in mind, however, that tax laws can and do change. For this reason, we recommend keeping excellent records of all improvements to justify your basis in the property even if you don’t think your gain will approach anywhere near the threshold amount.
If you have any questions regarding the tax implications for selling your home, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.
Throughout the COVID-19 pandemic, we are seeing more telemedicine appointments than ever before. Telemedicine enables remote healthcare, which makes it possible for physicians and medical professionals to treat patients via computer, tablet or smartphone, virtually anywhere at any time. It has been around for the past 40 years, but within the last five years there has been major growth in the field.
It is important to follow these best practices when offering telemedicine at your practice:
- Do realize that telemedicine will create efficient time saving opportunities for you and you patients.
- Check with your state’s licensing board to ensure you follow all standards that are applicable.
- Talk with insurance companies on whether certain services/codes that are billed for can be reimbursed if they are provided by telemedicine.
- Download Medicare Current Procedural Technology (CPT) codes that are specific to telemedicine.
- Ensure your malpractice insurance will cover your telemedicine services.
- Market that you are a provider of telemedicine and make patients aware of your services.
- Communicate what the patient can expect with telemedicine. Let the patient know things like the types of situations that can be addressed with telemedicine, let them know how long the visits tend to be, inform them of how much they will need to pay out of pocket, and let them know how emergency situations should be handled.
- Do inform patients about confidentiality and privacy with virtual medical professional visits.
- Do obtain Informed Consent from patients. These Consents provide important protection for the medical provider and gives the patient information on the services they will receive, how their records will be stored, and ensures the patient understands the medium through which care is being delivered and the limitations of providing care in this manner.
- Do manage your technology risk as discussed below.
Education is key. The patient should understand the benefits of telemedicine and be provided with step-by-step instructions to help them through the initial visit. At the time the appointment is made, someone should communicate all of the initial steps and ultimately follow-up with an email or video to ensure the patient understands and is comfortable with all of the process and procedures.
Managing Technology Risk is Key
Managing technology risk is critical to the telemedicine service delivery method. Patients need to be confident that telemedicine is safe and secure. Some technology-related risks include:
- Technology failures
- Identity and access management issues
- Physical security risks
- Information Technology (IT) infrastructure risks
Identity and access management can be combated through multi factor authentication. Physical security risks can be mitigated by having cameras and all secure platforms when communicating with patients. Technology risks can be mitigated by having the most up to date technology and having an IT professional available. If you do not have a designated technology expert on staff to assess and mitigate against the risks of offering telemedicine, there are many technology outsourcing companies available that can assist you.
Technology is the future, and with some assistance, all medical professionals can either begin to offer telemedicine or improve upon the telemedicine service delivery method. Successful treatment of more patients via telemedicine will lead to a larger more lucrative practice. If COVID-19 has taught us anything, it’s that we need to adapt quickly to the ever-changing circumstances around us.
If you have any questions regarding telemedicine best practices for your health practice, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form. For further information on COVID-19 resources, please visit our COVID-19 Resources page.
As every student with loans probably knows, the Coronavirus Aid, Relief, and Economic Security (CARES) Act that President Trump signed into law on March 27, 2020, provides some assistance for borrowers of federal student loans (private loans may or may not have special treatment depending on the lender). The Act suspends all payments from March 13, 2020 through September 30, 2020. During this period, interest will not accrue and collections and garnishments will not be pursued. Additionally, the missed months of payments will still count toward the 120 payments required for those borrowers working toward public service loan forgiveness. This is great news for about 9 million student loan borrowers.
On August 9, 2020, the President signed an Executive Order to extend student loan relief through the end of the year. More specific information on the changes, if any, will be forthcoming.
But what happens when 2021 rolls around, especially if you’re out of work due to the widespread impact of the coronavirus, lack of work or any other circumstances? There are still options to continue deferring or reducing the payments on your student loans. Ideally, the time to look into these options is now, and not when the relief has expired.
Student Loan Options
For reducing or deferring your student loan payments, here are a few options:
- Refinance at a lower interest rate.
- Consolidate several loans into one loan with a fixed interest rate that is based on the average interest rate of all loans being consolidated.
- Sign up for income-driven repayment.
- Apply for loan forgiveness programs; there are several, including ones available to teachers, nurses, military personnel, and those in public service. You may also qualify for income-driven repayment forgiveness, which allows you to base your payments on your monthly income. After 20 or 25 years (the plans have different time frames), your balance may be forgiven.
If you’re interested in learning more about these options, an excellent resource is the Federal Student Aid website, studentaid.gov. You will also be able to find updates on new legislation related to student loans due to COVID-19, as the administrators update the website frequently.
Finances During COVID-19
We would be remiss if we didn’t also touch upon what to do with the funds you would have used for student loan debt had there been no forbearance. Assuming you have income, whether from working or unemployment, and you have cash remaining after covering your necessities (housing, utilities, food, etc.), here are some financial tips we would recommend:
- Establish, or add to, your emergency fund. As the pandemic has so clearly illustrated, bad things can happen. Aim for at least three months of living expenses; six to twelve months (or even more) is ideal.
- Once you are comfortable with the level of your emergency funds, concentrate on paying down debt, beginning with the highest interest rate balances.
- Add to retirement savings.
- After you’ve taken these steps, you can look at other goals, such as a home improvement or vacation fund, or saving for your children’s education.
No one expected a global pandemic this year and all that has followed, but if it has shown that we need to be ready for the unexpected. We can take the lessons learned from this pandemic to prepare for the next bump in the road.
If you have any questions regarding federal student loans and the relief provided by the CARES Act, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form. For further information regarding COVID-19 assistance programs, please visit our COVID-19 Resources page.
Do you, as an employer, have parking available at your office or place of work? If the answer is yes, there are some things you will need to consider. The Tax Cuts and Jobs Act (TCJA) generally disallows the employer deduction for expenses regarding the cost of qualified transportation fringes for employees. When TCJA was first enacted, there was not much guidance in this section, that is until Notice 2018-99 was issued.
Notice 2018-99
This notice provided the guidance people had been asking for for over a year. All in all, parking that is taxable to the employee of the business can be deducted by the employer, only if it is on an after-tax basis. Different factors come into play whether an employer pays a third party for parking, or if the employer owns/leases their own parking facility. The notice guides the employer in determining what is and is not deductible through both instances.
Third-Party Parking
For employers who pay a third party, the deduction to be taken is fairly simple. Everything is disallowed except for the amount paid in excess of the monthly limitation. A reminder that any parking expense paid for employees in excess of the IRS prescribed monthly qualified parking exclusion can be included in the employee’s W2 income, and therefore would be deductible by the employer as part of the parking expense.
Owned or Leased Parking
As for those employers who own or lease their parking lot, the following is a brief explanation of how the calculation for disallowed expenses would work. This is a four-step calculation where the cost would include maintenance, repairs, snow removal, landscaping, insurance, taxes, security, and parking attendants. The notice specifically states that depreciation and expenses paid for items not located in or on the parking facility, for example lighting, are not included in the cost. Once that cost is figured, one can begin the process of calculating.
Step one of this equation would be to figure out the “reserved employee spots”. All of the costs in relation to their spots will not be deductible. These spots include any areas with specified signage or other ways to designate spots to anyone but the general public. Businesses were granted until March 31, 2019 to remove any signage to eliminate or decrease the amount of reserved parking spots within their lots. The employer should then allocate the percentage of total cost to these spots and deduct them 100% from the allowable expense.
The next step in the process is to determine the principal use of the remaining spots. These are spots not set aside specifically for employees. If 50% or more of the remaining spots are or can be used by the general public, then all of those spots are entirely deductible, and your calculation is complete. There is a guideline on what constitutes these spots as “provided to the general public,” which also needs to be taken into consideration within this calculation.
If the second step above is not the end of the road, then you must next calculate the reserved non-employee parking spots. These spots could be reserved for visitors, partners or 2-percent shareholders and are fully deductible. Again, this step requires you to calculate the percentage of spots reserved for non-employees and then you may deduct that amount in full.
Finally, step four is to determine the remaining allocation of the expenses. This is the part where anything that may not fall specifically into the above three steps would sit. The employer would then need to reasonably determine the use of these spots on a normal business day. This could be based on actual or estimated figures.
More Information
It should be noted that final guidance has not been provided for this issue. The IRS states that these guidelines are to be used in the determination of deductible qualified transportation fringes until the publication of proposed and final regulations. As you can see, the calculation for this deduction is in no way simply done. If you feel this change in law could pertain to you, or have any questions, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.
A “Just In Case” For Those Struggling Financially Due to COVID-19
It would be difficult to find a business or individual in the world that hasn’t been impacted by COVID-19 in some way. Millions of people are either unemployed, struggling to keep their businesses open, or are just trying to maintain the minimum cash flow necessary to provide the essentials needed to live. While unemployment assistance is available and stimulus payments continue to go out, much of the assistance has been slow, or has yet to arrive. Many people are exhausting their savings, if they haven’t already, and are looking for any possible way to survive financially. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. It included qualified retirement plan distribution relief that may be an option to help you get through this global pandemic.
Background
Prior to COVID-19, the IRS did allow taxpayers to take retirement distributions early, however doing so would result in a 10% additional tax if you were under age 59 1/2. Considering the economic hardship that most Americans are currently facing, the IRS has provided some much-needed relief to individuals that are adversely affected by this pandemic.
Relief Breakdown
As part of the CARES Act, the 10% early withdrawal penalty is being waived. This applies to coronavirus-related retirement distributions up to an aggregate total of $100,000 from all eligible plans and IRAs to a “qualified individual”. This waiver will apply to all retirement distributions that qualify under the CARES Act between January 1, 2020 and December 31, 2020, even if you are under 59 ½. This waiver applies to eligible retirement plans such as:
- Traditional individual retirement accounts (IRAs)
- 401(k) plans
- Profit-sharing plans
- Stock bonus plans
- Qualified 403(a) annuity plans
- 403(a) annuity contracts
- Custodial accounts
- Governmental section 457 deferred compensation plans
In addition to the 10% waiver, taxpayers can pay the tax associated with the distribution over a three-year period beginning with tax year 2020. Depending on the plan, taxpayers may also recontribute the funds they withdrew in one or more payments over a three-year period.
Eligibility
To be considered a “qualified individual” for this relief, you must have experienced at least one of the following;
- Either you, your spouse, or one of your dependents was diagnosed with COVID-19
- You have experienced financial hardship because you have been quarantined, furloughed, laid off, or had hours reduced due to the pandemic
- You are unable to work due to child care responsibilities
- You own or operate a business and had to close or reduce hours due to the pandemic
- You have experienced an adverse financial consequence due to other factors as provided in guidance issued by the IRS
Withdrawing funds from a qualified retirement plan early should never be a first choice, but under certain circumstances it may be necessary. It’s nice to have the option available without having to take the 10% early withdrawal penalty, while also having the option to pay income taxes on the distribution over a three-year period.
Further Information
If you have any questions regarding the qualified retirement plan distribution relief available though the CARES Act, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form. For further information regarding COVID-19 assistance programs, please visit our COVID-19 Resources page.
Do you have a number of real estate properties that are creating losses that you would like to deduct against your other income for tax purposes? Under the passive activity loss (PAL) rules, this would normally be impossible. In general, passive losses cannot be deducted against nonpassive income (such as salary, interest, dividends, or income from a business you materially participate in).
There is an exception where a taxpayer can deduct up to $25,000 of losses from real estate activities against nonpassive income from an activity that the taxpayer actively participates in. This exception begins to phase out if the taxpayer’s adjusted gross income exceeds $100,000. However, if you materially participate in rental real estate activities, you may qualify to be classified as a “real estate professional”. One of the advantages of being classified as a real estate professional is that losses from real estate activities can be used to offset other ordinary income such as wages, interest, or other nonpassive income.
Under IRC Sec. 469(c)(7)(B), an individual is eligible to be classified as a real estate professional if:
- The taxpayer materially participates, and more than half of their personal service time performed is attributable to real property trades or business, and
- The taxpayer spends greater than 750 service hours during the tax year materially participating in real property trades or business. Only time actually spent on performance or services qualifies towards the 750 hours. Being on-call or willing to work will not count towards the 750 hours, but travel time between rentals properties will.
IRC Sec 469(c)(7)(C) broadly defines real property trades or businesses as real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage.
In order to be eligible for this classification, an individual or closely held C Corporation must materially participate in the rental real estate activity. The taxpayer would need to meet one of seven tests in order to be considered materially participating in an activity. If the taxpayer is a limited partner in a Limited Partnership, they only need to meet one of three tests in order to qualify. There is also an election the taxpayer can make to aggregate their rental activities when determining material participation.
The tests for determining whether you qualify as a real estate professional are applied annually. That means some years you may qualify as a real estate professional, but not in other years. The losses from your rental real estate activity are not automatically treated as passive if you qualify as a real estate professional. If you materially participate in the rental real estate activity, any losses would be treated as nonpassive and, as a result, be able to offset other nonpassive income.
For additional information on qualifying as a real estate professional, click here.
If you want to know whether or not you qualify, or would like more information, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.
B Lab is asking socially and environmentally conscious companies to put their money where their mouth is; to draw on their resources and talent to use business as a force for good; and to balance purpose and profit. B Corporation status is a private certification issued to for-profit enterprises by B Lab, a global non-profit organization. B Lab defines certified B Corporations as “businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose.” Since its inception in 2006, B Lab has certified over 3,000 for-profit companies in over 50 countries. These B Corporations focus equally on generating profits and fulfilling a purpose.
Impacts of B Corporations
Why would a company want to become a certified B Corporation? Some companies believe in leading by example to show others that a business affects more than just the pocket of their shareholders. These companies identify the importance of taking responsibility for their impact on other stakeholders. Other companies use it to build business relationships and attract talent with those who share these beliefs. Certification allows companies to set standards and goals, as well as track progress toward improving their impact. B Corporations can have influence on market activity by allowing individuals to vote with their dollar. Consumers can choose to support businesses who are certified, which allows individuals to share one voice, which can provide incentive to other businesses to embrace similar values. The legal framework surrounding B Corporations protects the mission through organizational changes.
Pursuing B Corporation Status
How would an entity acquire B Corporation status? The process begins with the completion of a “B Impact Assessment”, an extensive questionnaire that helps assess the positive impact a company makes to its many stakeholders. Applicants must score an 80, or above, (out of 200) to be considered for B Corporation status. Examples of the score’s metrics are governance, workers, community, and environment. Beyond the initial application, there are legal requirements depending on the location of the company, the type of entity (corporation, partnership, sole proprietor), and whether the company is publicly traded or a wholly-owned subsidiary. For example, B Labs may require corporations to elect to become a benefit corporation where applicable, while partnerships may have to amend their partnership agreement. Once accepted as a B Corporation, a company is subject to transparency rules, site reviews, and recertification every three years.
Further Details
If you have any questions about B Corporations or the process for acquiring B Corporation status, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.
Are you a contractor with average annual gross receipts over the past 3 years of $25 million or less? Do you have ownership in a contractor corporation that was previously subject to alternative minimum tax (AMT)? If you answered yes to either of these, then the 2017 Tax Cuts and Jobs Act may have a significant impact on your tax return.
The 2017 Tax Cuts and Jobs Act increased the average annual gross receipts threshold to $25 million. This threshold was previously set at $10 million, and because of this increase, there will be many contractors that were previously classified as large contractors that can now be classified as small contractors. Contractors classified as large contractors must use the PCM, or Percentage of Completion Method when accounting for long term contracts. However, contractors classified as small contractors may elect to use the Contract Completion Method or the Cash Method. Since AMT is calculated using the PCM method, contractors that use these alternate methods may be subject to AMT adjustments.
The 2017 Tax Cuts and Jobs Act also repealed AMT for C corporations that have tax years beginning on January 1, 2018. As a result, corporations who use alternate methods of accounting for long-term contracts will no longer be subject to AMT. Some corporations that were previously subject to AMT may have AMT credit carryforwards that can be utilized up to the tax year 2021.
For more information regarding the impact of the Tax Cuts and Jobs Act and AMT on your contracting business, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.
Amid the COVID-19 pandemic, many employers have shifted to a remote workforce. This shift has led to questions regarding the impact these remote workers would have on state taxation. In response, Rhode Island, Massachusetts, and Connecticut have all recently released guidance regarding the tax implications of having employees working remotely during the COVID-19 crisis.
Personal Income & Withholding Tax
Each of the referenced states announced that nonresident employees, temporarily working outside of that state, will continue to be treated as that states-source income for personal income tax and personal income tax withholding.
For example, a Massachusetts resident normally works for a Rhode Island employer. They have wages that are subject to Rhode Island income tax withholding. If the employee is temporarily working within Massachusetts due to the pandemic, the employer should continue to withhold Rhode Island income tax.
Additionally, Rhode Island, Massachusetts, and Connecticut will not require employers located outside of their state to withhold additional income taxes. Employees living in one state and working in another will not be required to additional home state withholdings while working remotely.
For example, a Rhode Island resident normally works for an employer in Connecticut. They have wages that are subject to Connecticut income tax withholding. If the employee is temporarily working within Rhode Island solely due to the pandemic, the employer will not be required by Rhode Island to withhold Rhode Island income taxes from that employee’s wages.
Corporate Nexus
Under new COVID-19 emergency regulations, Rhode Island, Massachusetts, and Connecticut have also released new guidance on corporate nexus.
In general, a company may trigger nexus when engaging in business activity outside of their primary state. But, during the COVID-19 pandemic, the existence of one or more employees that previously worked in another state but are working remotely, will not in and of itself trigger nexus for sales tax or corporate income tax purposes. For more detailed information, see the following:
If you have any questions, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.