Hofstra Law Tax Outline by jxe96368


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									                        Taxation of Real Property Transactions
                                 Hofstra Law School
                                      Fall 2009

                                 Professor Janet Korins

Overview. This course focuses on the taxation of real property interests with a
transactional focus. We will cover issues relating to the acquisition, financing, ownership
and disposition of real property, including the determination and allocation of tax basis;
capitalization and cost recovery; the character and timing of gains and losses; and tax-
deferred exchanges. We will also discuss choice of entity and compare the tax treatment
of real estate partnerships and real estate investment trusts (REITs). The course will
combine a close reading of the relevant statutory and regulatory language with a
discussion of issues that typically arise in real estate tax practice.

Course Materials. We will use the text Federal Taxes Affecting Real Estate, Volume I,
by Thomas V. Glynn, published by LexisNexis. I have also put together a packet of
supplementary material including statutes, regulations and other publicly available
documents. All supplementary reading can be printed out through links on TWEN. The
TWEN password is “korins.”

Examination and Grading. Substantially all of your grade will be based on an “open-
book” final examination. Your grade may also be affected (either up or down) by your
attendance, preparation and participation in class discussions.

Assignments. Assignments for each topic will be posted on TWEN one week in advance
of class. Assignments will include both reading and problems. Occasionally,
assignments may include short in-class presentations and/or short (e.g., one or two
paragraphs) written responses to issues raised by the reading.

Class Participation. I expect you to come prepared and to participate in class. I welcome
volunteers, but I also reserve the right to call on students.

Attendance. I expect you to attend class regularly. Poor attendance may adversely
affect your grade. If you must miss a class, please send me an email briefly explaining
the reason. Attendance will be verified by your signature on a sign-in sheet. You are
responsible for signing in each week.

Office Hours and Conferences. If you have questions or want to discuss any issue, please
speak to me after class or send me an email at janet.korins@pace.edu to arrange an
appointment. I will usually be available to meet with students either before or
immediately following class.
                                   COURSE OUTLINE

The reading materials listed below are intended simply to give you an idea of what will
be covered. More detailed reading assignments will be distributed each week.

Unit 1: Basis, Realization and Recognition.

The first session will introduce the themes and concepts covered in the course. We will
review the definition of “income” subject to taxation and the statutory framework for
determining gain or loss on the sale or other disposition of property.

Reading materials will include portions of Chapters 1, 2 and 4 of Glynn. We will also
read Code Sections 61(a), 109, 162, 1001, 1011, 1012, 1014 and 1019, and Treasury
Regulation Sections 1.61-6, 1.61-8, 1.109-1 and 1.1001-1.

Unit 2: Effect of Mortgage Financing on Basis and Realization.

This week we will discuss the effect of mortgage financing on basis and amount realized,
focusing on the statutory framework as well as applicable caselaw. We will devote
substantial time to a discussion of nonrecourse financing of real property, focusing on
Treasury Regulation Section 1.1001-2. We will also discuss the application of these rules
in the context of “tax shelter” transactions.

Reading materials will include portions of Chapter 2 of Glynn and Treasury Regulation
Section 1.1001-2. We will also cover cases and rulings, such as Crane v. Commissioner,
331 U.S. 1 (1947); Commissioner v. Tufts, 461 U.S. 300 (1983); Estate of Franklin v.
Commissioner, 544 F.2d 1045 (9th Cir. 1976); and Revenue Ruling 81-278.

Unit 3: Debt Cancellation and Workouts.

This week we will focus on debt cancellation and workout situations, with respect to both
recourse and nonrecourse debt. Using numerical examples, we will review the
determination of gain or loss and cancellation of indebtedness income in connection with
foreclosures, forgiveness of indebtedness and similar transactions. We will cover, in
detail, Code Section 108, which provides that income from the discharge of indebtedness
may be excluded from income in certain circumstances, including in the case of
insolvency or the discharge of qualified real property business indebtedness.

Reading materials will include portions of Chapters 2 and 12 of Glynn. We will also
cover Code Sections 61, 108, 165, 166 and 1017, Treasury Regulation Section 1.1001-3
and Revenue Ruling 90-16.

Unit 4: Capitalization and Cost Recovery of Land and Buildings.

In this unit, we will review the capitalization and cost recovery rules as they apply to
acquisitions of real property. Particular attention will be given to the allocation of basis

among various assets acquired in a single transaction (e.g., land and buildings;
subdivided real property). We will also cover the rules for determining whether an
expense may be deducted or must be capitalized into tax basis under Code Section 263,
as well as the rules for depreciating buildings and other property.

Reading materials will include portions of Chapters 2, 3 and 5 of Glynn, together with
Code Sections 162 and 461(g), and Treasury Regulation Sections 1.61-6 (a), 1.162-4, and
1.263(a)-1 and -2.

Unit 5: Character of Gain or Loss on Real Property Dispositions.

This unit will focus on the character of gain or loss upon a disposition of real property.
In addition to reviewing the depreciation recapture rules, we will focus on the fact-
intensive determination of whether a real estate owner is treated as a “dealer” rather than
an investor, and the implications of dealer treatment. We will apply the dealer/investor
distinction in the context of subdivided real property.

Reading materials will include portions of Chapter 10 of Glynn, together with Code
Sections 1221 and 1237 and related caselaw.

Unit 6: Timing of Gain or Loss on Real Property Dispositions.

This unit will focus on the timing of gain or loss on a disposition of property. We will
cover the conceptual issue of when a sale is treated as completed. We will also cover in
detail the installment sale rules under Code Section 453, using numerical examples.

Reading materials will include portions of Chapters 6 and 7 of Glynn and Code Section

Unit 7: Tax-Deferred Exchanges: Basic Structure of a Like-Kind Exchange.

We will spend approximately two sessions on tax-deferred exchanges. The first session
will focus on the basic requirements of qualification as a “like-kind” exchange under
Code Section 1031. The session will include a close reading of the statutory
requirements, applying the rules in various contexts. We will do problems illustrating the
implications of receiving cash or “boot” in addition to like-kind property and the use of
leveraged real property in a Section 1031 exchange.

Reading materials will include selected portions of Chapter 8 of Glynn as well as Code
Section 1031 and Treasury Regulations Section 1.1031(a)-1.

Unit 8: Tax-Deferred Exchanges: Non-Simultaneous Like-Kind Exchanges,
Involuntary Conversions.

In this session, we will cover non-simultaneous like-kind exchanges and multiparty
exchanges structured with an intermediary. We will also review the election under

Section 1033 to roll over gain arising from an involuntary conversion or condemnation of
real property.

Reading materials will include portions of Chapters 8 and 8A of Glynn and Code
Sections 1031 and 1033.

Unit 9: Loss Limitation Rules.

This unit will cover various limitations on an individual taxpayer’s ability to deduct
losses arising from real property transactions. The focus will be on the application of the
passive loss limitation (Code Section 469) and the at-risk rules (Code Section 465) in the
real property context. We will also cover judicially imposed limitations on the use of
losses, such as the economic substance doctrine.

Reading materials will include portions of Chapter 13 of Glynn.

Unit 10: Personal Residences.

This unit covers special rules that apply to a taxpayer with respect to his or her personal
residence. We will cover various deductions available for homeowners, including the
deduction for home mortgage interest and deductions allocable to a home office. We will
also cover the exclusion from income of gain from the sale of a principal residence, and
the recently enacted tax credit for first-time homebuyers.

Reading materials will include portions of Chapter 9 of Glynn, as well as Code Sections
36, 108, 121, 163(h), 212, 280A and 461(g).

Units 11 and 12: Choice of Entity for Real Property Investments.

The remainder of the course (approximately 3 classes) will focus on choice of entity
issues for real property investments, with a comparison of the federal income tax
consequences of structuring an investment vehicle as corporation, partnership, limited
liability company or REIT. The goal is to appreciate the advantages and disadvantages of
each type of entity from the perspective of different categories of investors (e.g.,
individuals, corporations, foreign persons and tax-exempt entities).

In Unit 11, we will cover the relative advantages and disadvantages between tax
classification of an entity as a corporation or a partnership. Unit 12 will address the
federal income tax consequences of using a real estate investment trust, or REIT, as a real
estate investment vehicle, including the basic requirements for REIT status under Code
Sections 856 and 857.

Reading materials will include selected portions of the Glynn text (chapters 14-16) as
background, together with sample tax disclosure that would be included in typical
business transactions for each of the different types of entity.


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