State redevelopment rebate

[jklcpa]

This particular rebate is from the state for redevelopment of certain designated areas and is paid after project's completion. An actual rebate, not a credit. This will be an apartment complex in an SMLLC.

Are these rebates considered taxable income because of the exception under the TCJA sec 118(b)(2), meaning this would be taxable income?  Is it correct that these rebates are taxable, or am I misinterpreting that?

[Lee B]

I would consider it to be a reduction in basis of the related assets.

[DANRVAN]

On 1/26/2024 at 9:35 AM, jklcpa said:

An actual rebate,

Is this a property tax rebate?

[jklcpa]

1 hour ago, DANRVAN said:

Is this a property tax rebate?

No, up to 20% of building's cost.

[kathyc2]

Judy, did you see this?  https://www2.deloitte.com/us/en/pages/tax/articles/tax-reform-impacts-on-section-118.html

[DANRVAN]

On 1/26/2024 at 9:35 AM, jklcpa said:

Are these rebates considered taxable income because of the exception under the TCJA sec 118(b)(2), meaning this would be taxable income

The intent of TCJA was to eliminate the federal tax subsidy of state and local  development incentives.

Yes you are correct.   

It is gross income per section 61.

[DANRVAN]

On 1/26/2024 at 9:35 AM, jklcpa said:

This will be an apartment complex in an SMLLC.

Sounds like a  tax planning question, better than coming to you after the fact.

[jklcpa]

1 hour ago, kathyc2 said:

Judy, did you see this?  https://www2.deloitte.com/us/en/pages/tax/articles/tax-reform-impacts-on-section-118.html

Not that exact article but a similar one. Thank you for posting.

[jklcpa]

32 minutes ago, DANRVAN said:

The intent of TCJA was to eliminate the federal tax subsidy of state and local  development incentives.

Yes you are correct.   

It is gross income per section 61.

26 minutes ago, DANRVAN said:

Sounds like a  tax planning question, better than coming to you after the fact.

Thank you, Dan. That was my conclusion but wanted another set of eyes on this.  You are correct that it is a planning question for the project that will most likely be completed in 2025.

[DANRVAN]

1 minute ago, jklcpa said:

planning question for the project that will most likely be completed in 2025.

I forgot to mention an exception that you are probably aware of;  that would be if under a master plan approved by the government entity pre TCJA.