DC update

IRS Guidance Out on 20 Percent Business Income Deduction

“On December 22, 2017, President Trump signed the “Tax Cuts and Jobs Act”.

All individual provisions of the measure are generally effective after December 31, 2017 for the 2018 tax filing year and expire on December 31, 2025 unless otherwise noted. The provisions do not affect tax filings for 2017 unless noted. To read NAR’s analysis of the bill’s provisions impacting real estate, please go to “The Tax Cuts and Jobs Act – What it Means for Homeowners and Real Estate Professionals.

NAR will be providing ongoing updates and guidance to members in the coming weeks, as well as working with Congress and the Administration to address additional concerns through future legislation and rule-making. Lawmakers have already signaled a desire to fine tune elements of The Tax Cuts and Jobs Act as well as address additional tax provisions not included in this legislation in 2018, and REALTORS® will need to continue to be engaged in the process.

NAR worked throughout the tax reform process to preserve the existing tax benefits of homeownership and real estate investment, as well to ensure as many real estate professionals as possible would benefit from proposed tax cuts. Many of the changes reflected in the final bill were the result of the engagement of NAR and its members over several years.” – NAR Tax Reform Info

The Treasury/IRS recently released its proposed regulations on the Sec. 199A 20% deduction for pass through businesses.

NAR wrote a letter to Treasury and IRS advocating that a wider range of real estate professionals should be eligible for this deduction.  NAR was successful in getting a carve-out for real estate agents and brokers.  The proposed guidance from Treasury/IRS has specifically stated that services provided by real estate agents and brokers are not considered “specified service businesses” and can be eligible for the Sec. 199A deduction above and below the income thresholds of $157,500 (single) and $315,000 (married).

NAR has also published additional information, including a Realtor Mag piece and Comm Blog that has been posted on the NAR website. To learn more, there is a series of FAQs on the IRS website that can also be shared.

Bottom Line:

This is a pretty straightforward deduction for pass through business owners making under the income thresholds.  Agents/brokers who are above the income thresholds:

This proposed guidance from Treasury/IRS is good news because real estate brokerages are not considered “specified service businesses” and can be eligible for the Sec. 199A deduction above the income thresholds of $157,500 (single) and $315,000 (married).  The calculation will depend on how your business is structured (S-corp, LLC, etc) and the deduction cannot exceed the greater of 1) 50% of the W-2 wages paid by the business, or 2) the sum of 25% of those W-2 wages paid plus 2.5% of the original cost of “qualified property.”  This is generally the original cost of the business’s depreciable property during its useful life.  This is a very basic explanation and there are other considerations, particularly if you have multiple qualified businesses. Consult your tax advisor to give you guidance on eligibility and how to file for the deduction.  NAR will release additional information about the Sec. 199A tax deduction and its impact on real estate professionals once we have done more analysis on the proposed rule. 

Drone news

The Latest On Drones

New Drone News

Drones have been around a while now. We are long past the days when legal battles were being fought over whether a drone could be used for commercial real estate purposes. We now have a system put in place by the Federal Aviation Administration (FAA) that allows for reasonable licensing and operation of drones that seems to be working well. The rules have seen a couple of tweaks since they were first published. And there are numerous cities and municipalities that have enacted more specific and restrictive laws to better manage drone operation and use.

All of that is old news. However, there is no shortage of new… news. Drones continue to be used in more creative and innovative ways. Many start-up companies are conceived with new ideas on how to employ drones more effectively to solve real-world problems, save time or money, and complete ever day tasks more safely and efficiently.

Unless you’re combing the internet daily for the latest on drone development and employment you might not have seen some of the recent stories. I’d like to save you a bit of time and give you a few recent articles for your enjoyment and professional development:

Drones: A Life Saving Technology

Whether in search and rescue, first-responder services, or delivery of critical medical supplies, drones are saving lives. A recent report published by DJI asserts that drones saved 65 lives last year alone.

Drones Save Lives

Drones Spark Software Startup

Drones are sometimes a bother to people on the ground who are not familiar with their operation and impeccable safety record. Researchers at the University of Nebraska-Lincoln and developing software to help ease the bystanders’ discomfort of drones.

Drones article

Drone Divisions = Innovation

Start-ups aren’t the only companies in the drone game. Well-established companies are exploring new technologies and ways to integrate them. Ford has even established a drone division and is investigating, among other things, lighting technology for drone identification.

Ford drone division

Drone Defense Systems Popping Up

Amid concern for bad actors with drones, some are developing anti-drone systems. In Tampa, FL a company called Sierra Nevada is developing a mobile drone defense platform for a U.S. Department of Defense customer.

counter drone system

Drones Save Puppies, Too!

Finally, who doesn’t like a feel-good story about a drone saving a puppy?

drone saves puppy

The drone story is no longer about when and how we can use them. These days, the story is more like “what will they think of next?” And that question continues to be answered with more and more interesting and creative solutions. I tend to view the current drone world like the early days of the Internet or the introduction of the smartphone. I don’t think we’ve really even scratched the surface of the total drone capability universe. When it comes to drone technology, development, and news, it’s not so much keeping up as it is hanging on for dear life.

This post is part of the 2018 Future Leaders Committee content generation initiative. The initiative is directed at further establishing RLI as “The Voice of Land” in the land real estate industry for land professionals and landowners. For more posts like this, click here.

About the author: Caleb McDow, ALC, is a land specialist and vice president for Crosby & Associates in Winter Haven, FL. He holds a Master of Science in Real Estate (MSRE), the CCIM Designation, and is a licensed private pilot and drone operator. McDow joined RLI in 2014 as a Military Transition Program (MTP) member. He is an active member of RLI, serving on the 2017-2018 RLI Board of Directors and as Chair of the 2018 Future Leaders Committee. He also regularly shares his expertise on real estate issues for various industry blogs.

RLI Joins Coalition to Protect Prior Converted Cropland (PCC)

The RLI Board of Directors recently approved the Governmental Affairs Committee request to participate in a broad industry-based coalition to ensure that prior converted cropland (PCC) exclusions are retained in the revision of WOTUS rules. PCC are areas that were converted from wetland to non-wetlands for the purposes of agricultural commodity prior to December 1985 and should not be subjected to WOTUS rules. RLI is joining the American Farm Bureau Federation, National Cattlemen’s Beef Association, National Corn Growers Association, National Cotton Council, and many others to protect the PCC exclusions.

Repeal & Replace WOTUS: Two Steps Forward, One Step Back

Efforts to repeal and replace the Waters of the US (WOTUS) rule are now complicated by a recent supreme court decision. In a 9-0 unanimous opinion on January 22, “the Supreme Court found that while it may not be the most efficient use of judicial resources, there was no question in the law about where challenges to the Clean Water Rule belong,” reads an article on the subject by E&E News.  The federal government, who argues that the rule should not be interpreted literally but figuratively, is seeing this as setback to their hopes of repealing and replacing the rule at a national level.

The article continues to explain that “The choice of court — district or appeals — is significant because it affects the resources needed to litigate the merits of challenges, sets the statute of limitations for filing lawsuits and helps determine whether actions can be challenged in subsequent civil or criminal proceedings. District courts are also more tilted toward overturning government actions.”

“Congress has made clear that rules like the WOTUS Rule must be reviewed first in federal district courts,” Justice Sonia Sotomayor wrote in the opinion.

The REALTORS® Land Institute and National Association of REALTORS® support the review of the WOTUS rule as laid out by President Trump’s Executive Order last year to ensure that both private property rights and clean waterways are protected.

Read more on this topic here.

RLI Lands Five Legislative Victories in 2017: Inside The Beltway

As the New Year begins, I wanted to use this edition of “Inside the Beltway” to share some successes that RLI had in 2017.

Of, course these victories would not have been possible without the hard work and active engagement of RLI Members with their members of Congress through phone calls, emails, or in-district meetings. These activities make a difference and these five victories are a testament to their civic participation and perseverance.

Greater Awareness on the Value of 1031 

As the battle for tax reform and the possible reform or elimination of 1031s heated up in 2017, RLI members became the trusted source of information for Members of Congress and their staff for data on how 1031s add value to the economy. Turnover in Congress among Members and staff is constant and RLI members did an outstanding job communicating with Congressional offices about how 1031s add value to real estate in their district. While 1031s for real estate are safe as I write this column in November, 2017, it is critical that RLI members continue to reach out to Members of Congress and staff to make sure their voices are heard and 1031s are preserved.

The WOTUS Rule is Rolled Back

The Obama Administration finalized the Clean Water Rule (AKA the Waters of the U.S. Rule) in 2015.  Although the WOTUS rule was never implemented, due to a judicial stay, the damage of this rule would have been far-reaching. This vastly overreaching rule would have hindered economic development in rural and urban areas, tied up farmers, ranchers, and others who work the land in rolls and rolls of red tape and bureaucracy, and would have done unfathomable harm to property rights across the country. RLI and a broad coalition of regulated stakeholders were instrumental in raising alarms about the damage this rule could do to the country’s economy. As a result, one of the first Executive Orders President Trump signed began the process for withdrawing this rule and developing a common-sense and workable definition of “Waters of the U.S.”, one that will provide the clarity needed to encourage economic development and protect our critical water resources.

Drones Take to the Sky

The first call I ever received about using drones for real estate was in 2010 from Florida RLI Member Dean Saunders, ALC, who asked me the seemingly innocent question: “Can I use a drone to take pictures of some land I am selling?” At that time, after doing a little digging on the FAA website, I determined the answer was, unfortunately for Dean, “No.” The drone landscape has changed dramatically since then. Because of consumer desire and market need for innovative technology, RLI Members pushed the FAA to allow the use of drones for commercial purposes. FAA regulations, which were finalized in late 2016, were then implemented and enforced in 2017, unleashing a torrent of market creativity. Now, drones are a regular part of the American “airscape” partly because of RLI Members insistence that this technology can be used safely and can be an important part of selling land, thereby adding value to the real estate economy.

Reforms of the ESA Continue

There was good news on Sage Grouse as well as broader reform of the Endangered Species Act (ESA). While the Obama Administration decided to not list the Sage Grouse as endangered, they did withdraw 10 million acres of public land from being used for any economic activity such as mining or timbering, claiming this land was critical habitat for the Sage Grouse. In July, President Trump reversed this withdrawal through executive order.

On the broader issue of ESA reform, Congress has — for the first time in several years — moved forward with several bills that would enhance transparency, accountability of the ESA and improve the cost/benefit analysis during the listing process. More “rifle shot” legislative reforms are on the way.

The Deregulatory Steamroller Continues 

According to the Chamber of Commerce, President Trump has issued 29 executive actions to reduce regulatory requirements. In response, executive-branch agencies have issued 100 additional directives that either knock down regulations or begin a process to eliminate or shrink them.

The chamber’s count also lists almost 50 pieces of legislation that have been introduced or begun moving through Congress. And that count doesn’t include perhaps the most aggressive step the Republican Congress has taken: It has pioneered the use of a little-known 1996 law, the Congressional Review Act, which allows lawmakers to repeal executive-branch regulations within 60 days after they are finalized. Using that law, Congress has passed, and Mr. Trump has signed, legislation overturning 14 regulations promulgated by President Obama’s administration in its final days.

While unwinding regulations takes time, these are very consequential actions with huge benefits for the private sector and private development, and I expect these actions to continue.

This article originally appeared in the 2018 Winter Terra Firma Magazine, the official publication of the REALTORS® Land Institute.

 

About the author: In his position with the National Association of REALTORS®, Russell Riggs serves as the RLI’s Government Affairs Liaison in Washington, D.C., conducting advocacy on a variety of federal issues related to land.

Two-Year Delay on WOTUS Rule Proposed

November 21 – In an effort to further ensure the implementation of the 2015 Clean Water Act, also known as Waters of the US (WOTUS Rule), the Environmental Protection Agency (EPA) and the Army Corps of Engineers (Corps) have proposed delaying the rule until 2020. “Contrary to prior Supreme Court decisions, the Environmental Protection Agency (EPA) has proposed to “clarify” which water bodies are ‘U.S. waters’ and therefore subject to Clean Water Act regulations,” reads the National Association of REALTORS® website.

According to the agencies, postponing the WOTUS Rule will provide regulatory certainty while the agencies finish the process of repealing and replacing the WOTUS rule, which is currently underway. See our July 27, 2017 blog post for a more detailed explanation of the repeal and replacement process. The EPA and Corps will accept comments for up to 21 days after publication in the Federal Register. Read more.

See what other legislative issues are on the REALTORS® Land Institute’s radar on their Advocacy page.

tax reform; capitol building

Take Action: Protect The 1031 Exchange

The REALTORS® Land Institute and National Association of REALTORS® need your help to ensure the 1031 exchange remains protected in the proposed Tax Plan. Both the House and the Senate have released their tax reform plans retaining 1031 like-kind exchanges for land and real estate. However, we cannot be complacent – there is still a risk to 1031s as the tax reform proposals make their way through the legislative process.

The REALTORS® Land Institute and NAR need your help to protect 1031 like-kind exchanges for land and real estate. We encourage all landowners and land professionals to take action and help us ensure this valuable tax code makes it safely through the as the new Tax Plan moves forward.

Two Ways To Action:

1. Email this letter to your Members of Congress here.

OR

2. Call your Members of Congress and inform them of the importance of protecting the 1031 Exchange. You may use the information in this letter as a reference.

For more talking points or information on 1031s and their importance, visit our Advocacy page or our member resources center.

Template Letter to Send to Your Member of Congress

Dear Member of Congress,

As Congress considers ways to create jobs, grow the economy, and raise wages through comprehensive tax reform, I want to thank you for retaining current law regarding like-kind exchanges for land and real estate under Section 1031 of the Internal Revenue Code.

I would also urge you to retain this important land investment tool as the bill moves through the legislative process. Like-kind exchanges are integral to the operation and vitality of thousands of American businesses, especially in the land real estate sector. Like-kind exchanges allow taxpayers to exchange investment and business property for similar types of property, to diversify or consolidate holdings, and to transition to meet changing business needs.

A recent economic study found that like-kind exchanges encourage real estate and other capital investments.[1] This study also concluded that taxpayers engaged in a like-kind exchange make significantly greater investments in replacement property than non-exchanging buyers.

The elimination or restriction of like-kind exchanges would increase the cost of capital, slow the rate of investment, and decrease real estate transactions. It will have a negative effect on land transactions since land is not allowed to be expensed. Restricting this tool will lower land values across the country, which will negatively impact rural counties’ tax base and economic potential.

Like-kind exchanges promote tax reform goals such as economic growth, job creation, and increased competitiveness. Restricting them would hinder economic activity and investment, particularly in land.  It is an essential tool used by family farmers and ranchers and should be retained.

Thank you for your consideration of this important matter.

Sincerely,

[1] David Ling and Milena Petrova, The Economic Impact of Repealing or limiting Section 1031 Like-Kind Exchanges in Real Estate (March 2015, revised June 2015), at 5, available at http://www.1031taxreform.com/wp-content/uploads/Ling-Petrova-Economic-Impact-of-Repealing-or-Limiting-Section-1031-in-Real-Estate.pdf.

Waters of the US (WOTUS)

EPA and the Corps Announce Opportunities for Public Input on WOTUS

On August 25, the US EPA and the Corps today announced a series of teleconferences, one in-person meeting, and other opportunities for public input on Waters of the US (WOTUS) this fall. “The Environmental Protection Agency (EPA) and the U.S. Department of the Army (the agencies) will hold ten teleconferences to hear from stakeholders their recommendations to revise the definition of “Waters of the United States” under the Clean Water Act (CWA),” the announcement starts. “Both EPA and the Corps are aware that the scope of [Clean Water Act] jurisdiction is of intense interest to a broad array of stakeholders and therefore want to provide time for broad pre-proposal input,” the notice states. View the full announcement here.

The Realtors® Land Institute (RLI) stands behind the US EPA’s decision yesterday to move forward repealing the controversial Clean Water rule which was put in place in 2015. RLI has long advocated that withdrawing WOTUS would have a beneficial impact on the real estate sector, especially land real estate. The organization hopes to see the review of the rule eliminate the need for costly and time-consuming permits on waters that were previously unregulated by the federal government.

RLI encourages its members and landowners across the country to participate in the comment period during phase one, which is implementing a rule to re-codify the regulation that was in place prior to 2015. This comment period is currently open through September 27, 2017.

RLI also encourages participation in the series of teleconferences that will be held to better define the scope of CWA jurisdiction. The teleconferences will be held on a weekly basis beginning September 19, 2017. For a full schedule of webinars and ways to participate, please see the full announcement.

sage grouse

Conservation Plan for the Greater Sage Grouse Reviewed

After a June 7 order, the Department of Interior (DOI) has worked with various organizations and task forces to review the Greater Sage Grouse conservation plan under the Endangered Species Act. On August 7, the DOI released the first set of recommendations to make modifications to the plan. Farm and ranch land owners out west in affected areas have struggled with restricted cattle grazing and stunted development abilities to farmland properties since the plan was put in place in 2015. Most just want to see a balance struck between ensuring the species does not go extinct and that their private property rights are not infringed upon by legislation that is unnecessary. Read full article.

UPDATE | 10/6/2017 The Department of Interior, Bureau of Land Management announced the cancellation of a proposed withdrawal of 10 million acres of public land throughout the Intermountain West. The notice of cancellation can be found on the BLM website here.

These lands were proposed to be withdrawn as sage grouse habitat, but this massive withdrawal of public lands would have also significantly impacted the economies of communities who relied on this land for mining, grazing, timbering, etc.

NAR submitted a comment letter in 2015 expressing concerns about this public lands withdrawal and the economic impacts it would have had on communities.

The lands will continue to be managed in accordance with existing plans, programs, policies and regulations in Idaho, Montana, Nevada, Oregon, Utah and Wyoming.

Read more on Sage Grouse Management in the News in a piece by Paul Bottarri, ALC, on the RLI 2017 Government Affairs Committee.

Proposal Released to Rescind the WOTUS Rule

“Fulfilling a portion of an executive order by President Donald Trump, the EPA and U.S. Army Corps of Engineers have released a proposal to rescind the Waters of the United States (WOTUS) rule that expanded federal jurisdiction under the Clean Water Act.

The proposal published in the Federal Register on Thursday, July 28 would nix the 2015 WOTUS rule and reinstate the definition of the streams and wetlands subject to federal oversight under the act that existed prior to its finalization.” Read more from the NAR article.