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The 2020 checklist

ARTICLE | December 03, 2020

Authored by RSM US LLP


For the past decade, growth in commercial real estate has been on a steady run, bolstered by low interest rates and an abundance of dry powder. As the end of the current business cycle approaches, however, real estate owners and investors face increasing risks. As we close the book on 2020, here are 10 important year-end resolutions.

1. Right those REITS

Review distributions from your real estate investment trust. Have you met the dispersal requirements for 2020? Here are some suggestions if your REIT hasn’t yet hit the distribution mark

2. Do some analysis that’s not too taxing

Do some analysis that’s not too taxing. The IRS issued draft instructions for 2020 Schedule K-1s on Oct. 22, 2020, with some welcome relief that simplifies the tax capital reporting rules. Review your tax records to make sure that you have all information necessary to disclose the data for your 2020 K-1s.

3. Don’t be afraid of phantom income

Don’t be afraid of phantom income. Debt forgiveness is still taxable income even if no cash has been received. Be prepared to potentially pay taxes on a loan workout.

4. Make cash king

2020 has been rough on many middle market businesses. Are you doing everything you can to minimize your operating costs? Here are some ideas to generate cash for private equity firms.

5. Play it forward

Play it forward. Given the results of our presidential election, tax rates are likely not going to be lower in the near future than they are in 2020. Instead of following the typically sage advice to “accelerate expenses and defer income,” do the opposite—accelerate your income into 2020 and save a few percentage points of tax.

6. Don’t give away the store on rents

Lease concession accounting may affect financial statements and rent forbearance may have its own implications for tax purposes too.

7. No pain, no gain

The new Biden administration may look to eliminate 1031 exchanges in order to fund other programs. If it is part of your disposition strategy, plan accordingly.

8. Consider converting

You’ll take a short-term tax hit, but converting a traditional IRA into a Roth may be worthwhile for the long haul. Tax-free distributions could pay off down the road, particularly if we expect higher tax rates in the coming years.

9. Plan ahead

The current estate tax exemption is $11.58 million, meaning that your estate is tax-free up to that amount. You can use some of that exemption now by doing some creative planning. Under Biden’s tax plan, this exclusion is expected to come down significantly.

10. Close the GAAP

Understand how the new FASB standard for leases (ASC 842) applies to your business. While it is not effective until Jan. 1, 2022, for private companies, adoption may be a heavy lift and require implementation of new software

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This article was written by Kelly Andiorio, Scott Helberg and originally appeared on Dec 03, 2020.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/industries/real-estate/the-2020-checklist.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

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