Our Tax attorneys have substantial experience advising on tax issues that arise in real estate transactions. Our experience ranges from providing tax counsel in connection with fund formation for real estate funds to tax planning for investments by a non-U.S. party’s real estate fund and individual real estate projects to negotiating tax provisions of joint venture agreements.
In addition, our tax practice professionals have a broad range of experience working with development funds seeking treatment as a qualified opportunity zone fund. We also advise on the use of the Delaware Statutory Trust (DST) structures in both traditional offerings of DST interest to like-kind exchange investors and nontraditional situations where an existing real estate fund is seeking to raise convertible capital from like-kind exchange investors.
Working closely with Polsinelli’s national real estate practice members, our tax attorneys provide tax planning advice on real estate transactions throughout the United States.
Tax Planning for Real Estate Funds
In connection with the formation of a real estate fund, tax planning is one of the more important parts of the process. Our Tax attorneys work on an integrated basis with members of our funds’ practice in identifying the appropriate structures for optimizing the tax benefits available in a real estate fund. The tax practice is deeply involved in the fund formation process including matters involving implementing strategies for maximizing capital gain treatment in respect to interests in the fund held by affiliated of the fund’s sponsor or drafting various tax provisions of the fund document to avoid the acceleration of income.
Tax Planning for Foreign Investment in U.S. Real Estate
Our Tax attorneys advise both U.S.-based real estate funds and foreign investors in developing the appropriate structures to facilitate investments by foreign investors in U.S. real estate projects on a tax-advantaged basis. The tax practice regularly provides U.S. tax advice on the use of leveraged blocker corporations and structures designed to maximize the use of “portfolio interest” in transactions involving the investment in capital in U.S.-based real estate by foreign investment funds, high-net-worth investors based outside of the United States and other foreign investors.
Tax Planning for Real Estate Joint Ventures
In many real estate joint ventures, the negotiations related to the parties’ allocation of tax benefits are critical to the venture’s success. Members of the Polsinelli tax practice have significant experience in the complexities of the U.S. income tax rules that apply to limited liability companies (LLC), limited partnerships (LP), statutory trusts and other flow-through entities that are typically used in joint ventures involving the development of real estate. In addition, our Tax attorneys represent clients throughout the United States in developing tax-advantaged structures for the disposition of the underlying real estate and in situations involving the buyout of a joint venture partner.
Complex Like-Kind Exchanges and Delaware Statutory Trusts
In many cases, a deferred like-kind exchange can be a straight-forward transaction. However, some circumstances, such as the use of various structures by multimember limited liability companies (LLC) to facilitate member exchanges, can make it complicated. Similarly, using like-kind exchange compliant structure to facilitate the investment using like-kind exchange proceeds through a co-investment structure can also open a new source of capital. Our Tax attorneys have advised clients on the use of both the tenancy in common (TIC) structure or the Delaware Statutory Trust (DST) in traditional drop and swap structures, real estate offerings structured as DSTs and in nontraditional structures using a 1031/721 approach.
Tax Planning for Distressed Real Estate Work-Outs and Recapitalizations
One of the many issues to consider in a distressed real estate situation is the income tax costs that could arise in the various alternative solutions being considered. Our Tax attorneys have worked with both owners of distressed real estate and with parties looking to recapitalize the distressed real estate by investing capital in developing tax-oriented strategies to minimize the tax costs that can arise. In addition, distressed property situations involving property owned in the DST structure where the adoption of typical work-out strategies can create adverse income tax results if those strategies are not implemented properly, members of our tax practice have significant experience in adopting various strategies to maximize the benefits of the like-kind exchange rules of Code Section 1031 in these special situations.
Opportunity Zone Funds
In 2017, when opportunity zones were included in the Internal Revenue Code, we assembled a group of attorneys from our real estate, tax, securities and corporate practice areas to form a dedicated working group to help our clients determine the right approach to utilizing the opportunity zone structure. Our tax practice has represented clients in opportunity zone transactions involving more than $1 billion of transaction value.