Final Pass-Through Deduction Rules Are A Welcome Relief For Rental Real Estate Activities

On Friday, January 18, 2019, the Treasury Department issued final rules under IRC Section 199A. As part of this regulation package, Treasury also provided much-needed relief and clarity for rental real estate activities.


IRS Section 199A is a tax incentive for pass-through entities and sole proprietorships. It effectively reduces the federal tax rate on income arising from certain activities by as much as 20%.  However, Section 199A only applies to an activity that is a “trade or business.” This is a term that is not clearly defined by the IRS (shocking, I know) and there is also vague guidance in case law. In general, the case law would suggest that many real estate activities might not qualify under this definition. Real estate owners, developers and investors thus faced uncertainty as to whether the incentives under 199A would apply to them.

The Safe Harbor [Read More]

June 26th, 2019|Articles|

Four Phases of the Real Estate Market

Real estate follows four definite phases: (1) Recovery; (2) Expansion; (3) Hypersupply; and (4) Recession. In 2008, the real estate market went through the period known as the Great Recession which lasted nearly four years. In 2012, we began the Recovery phase and made the long climb out of recession. The Recovery phase is the bottom of the barrel. Occupancy rates and rental rates are low due to tepid demand.

For the last several years, we have been going through the Expansion phase. During the Expansion phase, the market is on an upswing due to growing demand. In this phase, occupancy rates and rents are on the rise generally due to a strong economy and job growth.

Due to regulatory changes in the banking industry to prevent another recession and changes in the tax code to promote economic growth, the real estate market has been on a prolonged period of expansion. How long this [Read More]

June 25th, 2019|Articles|

When Does a “Guest” become a “Tenant?”

Popular vacation rental websites like to use the term “Host” in place of owner and “Guest” instead of tenant.

Host & guest, when used in the realm of vacation rentals, which are 29 days or less, is a fair term. We wonder when does a guest become a tenant?

The Arizona Residential Landlord & Tenant Act is excluded in transient occupancy in a hotel, motel or recreational lodging. According to the Arizona Department of Revenue, any occupancy greater than 29 days falls under the business code for residential rentals, even when offered through a website. That has no bearing.

In Arizona, this is detailed in the Arizona Revised Statute (ARS) 32-2121, which provides an exemption to licensing requirements for rental activity less than 30 days. ALL OTHER RENTAL ACTIVITY REQUIRES A PERSON TO HOLD A LICENSE [Read More]

June 20th, 2019|Articles|