Year-End Tax & Accounting Insights for Real Estate Professionals

There are three accounting models that could be applicable depending on the debt modifications, facts and circumstances including troubled debt restructuring, also known as TDR, debt, extinguishment, or debt modification. The first scenario to consider is when debt is restructured with the same lender but has a troubled debt restructuring. For a debt restructuring to be considered troubled, an entity must be experiencing financial difficulties and the lender must grant a concession. It's important to note that the accounting for A TDR can differ significantly from the accounting from a non TDR. If the transaction is not considered TDR, the next step is to determine whether the transaction is a debt extinguishment or a debt modification. Note. If an entity enters into a new debt arrangement with a different lender and satisfies the original debt arrangement with the original lender, the transaction is accounted for as an extinguishment of debt and issuance of new debt. If a debt restructuring with the same original lender, the determination between an extinguishment or a modification should be based on the economic substance of the transaction regardless of the entity's legal form. The analysis requires a present value calculation to determine if the change in contractual cash flows between the original debt and the restructured debt is less than or greater than 10%.

The present value analysis has several nuances that need to be considered, such as are there changes in principal amounts that should be treated as day one cash flows, or if the debt can be prepaid, then a separate cashflow analysis would need to be performed, assuming whether the prepayment is exercised or not exercised, and the scenario with the smallest change is the scenario that should be used once the present value analysis is completed. If the change in cashflow is 10% or more, the restructuring is accounted for as an extinguishment. If the change in cashflow is less than 10%, then the restructuring should be accounted for as a modification. There are several other questions to ask or to consider when assessing debt, such as is a going concern assessment needed? Are all debt covenants being met, has liquidity been impacted negatively? It's also important to consider the timing of any debt related transactions and ensure that all facts and circumstances are considered again prior to audit issuance to determine if any subsequent events have any impact that need to be reflected or disclosed. Now, back to Astrid to present your next polling question. Thank

Astrid Garcia: Polling Question #2.

Amy Menist: Back to you. Great, thank you Astrid. So the correct answer is B, debt adjustments is not an accounting model for debt modifications. All right, so the next area that we're going to consider for your upcoming audit is the fair valuing of assets. Typically in real estate audits, the fair value of assets play a crucial role in the purchase price allocation or an impairment analysis. So given the current economic environment, there'll be more scrutiny on the underlying calculations that companies use to arrive at an asset's fair value. There are currently three acceptable approaches to consider the valuation of real estate, including the market approach, also known as the sales comparison approach, which utilizes third party appraisers who conduct a valuation by comparing one property to the values of recently sold similar properties in the area. The next approach is the income approach, which involves developing a model to value the future cash flows of the property. And lastly, there's the cost approach which estimates a property's value by considering the cost to build an equivalent property. Please note that Neil Axler will be explaining these three approaches in greater detail in the upcoming real estate valuations portion of this webinar.

Once the fair market value is determined through either the market approach, income approach, or cost approach, the value is then used during the audit for purchase price allocations. In an impairment analysis, the purchase price allocation is the process for recording and accounting For the acquisition of a property, the purchase price of an acquisition is allocated to the assets acquired and liabilities assumed at fair value with limited exceptions, whereas an impairment analysis is performed to determine if the carrying amount of an asset exceeds its fair value. There are numerous triggering events that could be possible, indicators of an impairment of an asset such as a significant decrease in the market price, a significant adverse change in the extent or manner in which an asset is being used, a significant adverse change in the legal factors or in the business climate, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction, a current period operating or cashflow loss combined with a history of operating or cashflow losses or a projection of future forecast that demonstrates continued losses associated with that asset or a current expectation that the asset will be sold or disposed of significantly before the end of its previously estimated useful life under gap.

You take the carrying value of the asset, which is the historical cost minus the accumulated depreciation and subtract its fair market value. And if the fair market value is less than the carrying value, you record an impairment loss for the difference. Please note that the details of the impairment loss must then be disclosed in the financial statement. Footnotes, now that we've gone through the key concepts surrounding debt modification and fair valuing of assets, let's discuss going concern. A going concern analysis is prepared by management for the purposes of demonstrating that a company can sustain itself. The period that you need to consider for your going concern analysis is one year and one day from the anticipated financial statement, issuance date, not the balance sheet indicators that there could be a potential going concern include but are not limited to maturing debt, trends of negative cash flow from operations, a major loss of an anchor tenant, lower struggling occupancy or assets that are deemed underwater.

The presence of one or more of these indicators does not necessarily mean that you're going to have a going concern as there's a variety of mitigating factors that can alleviate a substantial doubt. As previously discussed, debt restructuring or modification is expected to be the most common mitigating factor. However, given the current environment, refinancing isn't always easy and the risks relating with maturing debt is very high. Therefore, companies need to support how they're working with their lenders to address any debt concerns. There are also other possible mitigating tools available such as obtaining other forms of funding, making a change in the business operations or disposing of an asset of the business, as well as analyzing revenue and projected cash flows and assessing the quality and value of collateral available. If debt, however is the driving force behind your going concern analysis, do not wait until the end of the year to start discussing this with your auditors. It's best to bring it up early and tell them your plans to mitigate and what efforts you've taken so far so they can properly analyze and disclose as deemed appropriate.

It's also important to stress that although receiving an audit report with a going concern is not the most desirable outcome, it's not an end all but rather just informs the readers of the financial statements, the current situation and the company's plans to mitigate. It's valuable to understand the impact that a going concern has on a financial statement. If a substantial doubt is alleviated, then the conditions that raised the going concern, the company's evaluation of its significance and the company's plans to address them are required to be disclosed. If a substantial doubt is not alleviated, then a statement indicating substantial doubt about its ability to continue as a going concern along with the conditions or events that raised the concern, its evaluation of its significance and the company's plans to mitigate them must be disclosed in the financial statements. So please note, but in both cases, management's assessment of the significance of those conditions or events in relation to the company's ability to meet the obligations must still be disclosed. So by identifying loans coming due within one year and one day of the financial statements and discussing triggering events surrounding substantial doubt with your auditors going, concern could be addressed early in the audit so that all options are available, analyzed and properly disclosed within the financial statement to protect the entity and its stakeholders. So thank you all again for your time and please don't hesitate to reach out to me if you have any. Pass this on to Neil Axler who'll be discussing the real estate valuations.

Neil Axler: Thanks, Amy. Hi everybody. What did you do in 2024 when you heard the daily noise about what's going on with the real estate market is has remote work killed office buildings values? Are all office buildings going to be converted to apartments? What's going to happen with the new administration? Will we still care about sustainability and green buildings? What's going to happen with all the GSA office space if the changes happens with government work, what's going to happen to industrial with tariffs? Another thing, what about affordable housing? What's going on with rent control, rent stabilization with insurance costs? What's going on with the apartment market hospitality? Are Airbnbs not better than hotels anymore? Questions like that? What's going on in New York City? Why is it so expensive to get a hotel room in December and why can't you get good housekeeping at hotels anymore? And lastly, why are the trash cans so small in hotel rooms?

What's going on with retail? Hasn't e-commerce killed retail yet for manufacturing and last mile distribution? Last mile delivery? Is there still demand for distribution the way it was? What's going on with that? Will last mile delivery ever use drones like they talked about for delivery or is what's going on in the great state of New Jersey with drones going to kill that idea as well? While all those questions can be answered by calling your trusted real estate appraiser, my name's Neil Axler and I lead EisnerAmper's real estate practice. We have a national valuation practice and we do appraisal work throughout the country. Today I'm going to talk about the valuation spectrum. I'm going to talk about valuation methodology and reconciliation. My polling question is at the end of my remarks, so I would advise you to take some notes. How do you get to the right value?

What do appraisers do? This is often something our clients and customers do. They think we're just throwing darts at a dartboard and we come up with values, but that's not true. We do have a methodology, and I'm going to talk a little about that. I, there's a valuation spectrum. Some values are low, some values are high. There's always a range of values, and that's really important when you're doing valuations for different purposes. There's purposes where valuations, the client would want the valuation to be low for a property tax appeal or something like that, or possibly an estate where a taxable estate, or would you want a valuation to be high for some sort of lending? And that is reasonable. It's reasonable to have a range of values, but what's important as an appraiser is that you support your valuation. You support the range of values in your conclusion that the reader, the IRS or whomever else can see a clear, transparent, not misleading appraisal report.

It's important to look when you're an appraiser, which photo do you want to include into your appraisal report? Do you want to include a snapshot of the property that is looking really, really nice as the property on the left or possibly a property picture of the property on the right that is not as nice? It's important to be consistent. If you are doing evaluation and you have a picture of something that's on the left, but you're describing the property and giving such positive adjustments and positive narrative about how great the property is, but you're showing possibly the picture on the right, then it does, it's less, it's less good. It's got to be consistent, it's got to be reliable. So it's very important when you're talking to your appraiser, what photos are they doing? A big part of my practice is we try to see it as many properties as we can.

When we do appraisal reports, it's so often our clients will not even know the square footage and not understand all the properties that are at their building, or they could have prior appraisals and prior indications of value that did not include all of the square footage or had too much square footage. Oftentimes, the local tax assessor or local databases are incorrect. So it is important to inspect the property and be able to take some photos and put the right picture into the report and to your analysis. As I discussed when I started out, a lot of things are happening. A lot of things are happening in real estate all the time. It's very localized to where you're at, but it's based on the economy and political situation. So the economy, are we in a expansion phase? Are we in a contraction if we're in a recession recovery?

So the real estate life cycle is so important and so important when you're looking at the feasibility of a real estate analysis and of your property valuation. So appraisers need to consider all of that. Let's talk a little bit about the accounting side of this. As Amy discussed in her prior discussion, fair value the definition of fair value that appraisers use for when we're working with audits and purchase price allocations. And for financial reporting impairment values is the definition that's found in a SC 820, the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the valuation date. So that's the definition that we would use For fair value, you need to consider the highest and best use of the assets. So in compliance with a SC 820, fair value assumes the acquired asset will be used at its highest and best use, which is physically possible, legally permissible, and financially feasible at the measurement date.

In broad terms, highest and best use refers to the use of an asset by market participants that would maximize the value of the asset or the group of assets within which the asset would be used. Highest and best use is then determined based on the use of the asset by market participants, even if the intended use of the asset by the reporting entity is different. There's the three hierarchies here, so fair value hierarchy level one, these inputs reflect quoted prices for identical assets or liabilities in an active market level. Two, these inputs reflect quoted prices in markets such as quoted prices for similar assets in active markets, quoted prices for identical or similar assets in non-active markets, and C inputs other than quoted prices that are observable, D inputs that are derived by correlating observable market data. Level three, these inputs reflect inputs other than directly observed quoted prices, and that is really key when you're working on fair value.

The other task that we work on when we're not working on audit financial reporting is fair market value. We use this when we're working on trust in estate, when we're working on basic litigation and other real estate assignments. So per of the IRS, the definition of fair market value is the price, which the property would change, hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of relevant facts. As Amy described. The different approaches, the value, I'll dig into them a little deeper with an appraisal hat on. The sales comparison approach is based on the premise that market participants value a property based on the sale prices of similar properties. It is most useful when there's been a significant number of recent sales and listings of similar properties, an analysis of the degree of similarity between the subject and the comparable property is made.

And then adjustments, quantifying the impact of differences between the comps and the subject are made. Results are the indicated range of value. Next approach is a cost approach. The cost approach is based on the theory that market participants value a property by examining the costs associated with purchasing a comparable site and then replacing or reproducing the existing improvements. This is really an important approach for financial reporting as well when we need to allocate the land and the building separately. The cost approach is performed in three steps. One, you must value the land based on the subject's highest and best use. Two, you got to use current costs to reconstruct or replace the improvements they're derived from actual construction costs, cost manuals, or discussions with builders and contractors. And then lastly, you consider the amount of depreciation of the subject's improvements that have sustained, and then you subtract this amount from the cost.

New income capitalization approach is the final approach, and this is based on the premise that market participants measure the value of a property by calculating the present value of future economic benefits associated with property ownership. This is most appropriate for income producing properties. There are two methods, direct capitalization, and the DCF yield capitalization. Direct cap approach is a net operating income divided by an overall cap rate. Yield capitalization is the property's future income stream, including the annual cash flows, and then the eventual sale of the property is discounted to its present value. Then you reconcile. So then you get to the bullseye by determining which approach is the most dependable, and then the consideration is given to the most. The data that is incorporated into each approach after the consideration is given to each approach. The final opinion is determined. The key for us in this market specifically is spending as much time interviewing market participants. My team spends hours talking to brokers in whatever market we're looking at properties, and they ask brokers everything from cap rates to rental rates to land sale prices and building sales to get an understanding of what's going on the absorption time and so forth. We talked to developers, we talked to attorneys, and we even talked to accountants within Eisner and other accounting firms to reconcile the value. Here's the test, the polling question. I'm going to send this over to Astrid.

Astrid Garcia: Polling Question #3

Neil Axler: So just while we're waiting for the polling question to come in, we just had a question pop up from the chat. Do clients often present you with different building descriptions? And then That's correct. I just had an impairment of a auto manufacturing facility, a big one in the Midwest, and the client had an appraisal from last year with the impairment that had one square footage of about 400,000 square feet, but then they had another appraisal from a couple of years ago that was 150,000 square feet higher than that. And then property data from databases were much different. So that is common and that's another reason why it's so important to inspect the property and make sure you're looking at building plans and so forth. Astrid, are we good with the numbers?

Astrid Garcia: Yes, we are. We'll be closing the polls now, so just make sure that if you haven't submitted your answer, you hit submit.

Neil Axler: Excellent. So I'm going to move on to the next session. Thank you all.

Michael Shuster: Alright, thanks Neil. Appreciate it. Good afternoon everyone. Thanks for joining us today. My name's Michael Schuster. I'm the director of our real estate outsourcing group based out of the New York City office. And so to kick things off, I just want to quickly provide some information about what our outsourcing group has to offer. So managing the month end close and financial reporting that could be pretty challenging and complex for real estate owners and operators. By outsourcing these services, a real estate company, they're really able to streamline their processes, improve efficiencies, and let them focus on their core business strategies and the performance of either their properties or their portfolio. So again, our outsourcing team, we're able to handle all sorts of recurring monthly services to name a few. We offer concierge, accounts payable services to manage and process vendor payments. We can take care of all of your bank reconciliations. We're able to maintain balance sheet schedules, so your fixed assets, prepaids, accruals, and then we ensure timely and accurate delivery of the financial reports, whether they go to owners, investors or lenders. And then depending on your asset class, say you have an office building, we're able to assist with cam billings or if your property is under development, we're able to help with construction draw wrecks, and then we ensure that controls are followed and we always remain best practices as we see fit.

So as we're quickly approaching the year end, this is a great moment to reflect on how can we improve efficiency and accuracy and compliance in our accounting processes. So today we're going to talk about the importance of having an effective system controls, whether they're in accounting or property management or real estate investments. And I'll also touch upon how automation, how that could completely transform the month-end closing process and how if you leverage technology, a real estate company, you're able to achieve greater efficiency and accuracy. And this generally leads to cost savings and improve decision making.

Astrid Garcia: Polling Question #4

Michael Shuster: So while you're answering this polling question, it's important to think about how automation can transform your month end closing process. A lot of the different companies that I speak to, they're at varying stages of this process. And if you are considering automation or you haven't taken the plunge yet, you're probably not alone. It's about exploring the right tools and strategies and trying to enhance the month-end close. But regardless of where you're in this process, it's really clear that automation, it does have the potential to significantly streamline the month-end closing process.

Astrid Garcia: Alright, well I'm going to be closing the polls now. Make sure that you've submit your answer back to you.

Michael Shuster: Alright, so the month-end closing process, it can be a pain because it requires a lot of manual effort. It could also be time consuming and it can be prone to human errors. With automation, everything changes really. So tasks like data entry or document management or financial reporting, these can be automated. This cuts down on human effort can reduce mistakes, but it speeds things up a lot in automation. It also should improve the accuracy of the data. So you receive realtime data and there's automated checks, so you're able to close the books faster and you ultimately have more confidence in the data, which will be reliable and it could stand up to audits or compliance checks, especially around this time of the year. So even more automation, it can help optimize existing business processes. It eliminates bottlenecks, it can reduce duplicated efforts, and you can automate repetitive tasks. So imagine a software bot, imagine that handling data entry. They're able to go into your emails or spreadsheets or databases and extract this information and then they take that information and they put it into the right systems. Again, we see that as a huge time saver and also reduces human error.

So what are the specific benefits that you can see from automations? So a few big ones that we see. So automation reduces manual work, the closing process goes much faster and much more efficiently. And then this gives and allows your team to focus on strategic tasks instead of them getting bogged down in repetitive types of work, automated systems that can also ensure data is processed and entered correctly. This cuts down on errors and ensures more reliable financial reports. Also, you have this real-time data which gives decision makers a clearer picture of the company's performance and that allows them to make better, more informed decisions. Automation reduces the need for manual labor and in turn would lower costs and fewer errors means less time fixing mistakes.

It makes scaling easier. So as your company grows, automation is able to handle this increased workload without needing more staff. And finally, automation. It makes it easier to stay on top of regulations, it can automatically verify processes, comply with industry standards, and it provides a clear audit trail for tracking purposes is. So now let's talk about the cost side of things. So the upfront investment for automating the month and close it can be steep and it depends on a lot of different factors. So the complexity of the process that you're looking to automate, the tasks that you select to automate the technology that you decide to use and any vendors that you decide to go with. But in the long run, these savings, they're generally substantial. So a breakdown of some of the costs that you should consider if you're looking to automate. So first, you'll need to buy or subscribe to an automation software plus any other technology that's required like hardware or cloud services. Next, you should expect to incur implementation costs of setting up the system, configuring and customizing it, and then integrating it with any of your existing processes or systems. Then there will be always ongoing maintenance system updates and technical support. And finally, your staff will need training on the new systems and the processes and workflows. And again, while these could be significant, the ROI, it's usually huge because it does cut down on all these labor costs, it speeds up the closing times and it reduces errors.

So how would you get started if you were looking to automate? So a simple roadmap here, I would start by looking at what tasks are the best fit for automation. And these generally tend to be data entry, document management, and financial reporting to name a few. Next, you would take a look at how long do these tasks take, how many people are involved? Are these where errors typically occur? This helps you prioritize the processes which you should tackle first. You can use tools, so flow charts or modeling software to help you map out your current workflows. And this generally helps you identify any inefficiencies and areas of improvement. So after mapping out the current process, it's now time to redesign the process and look to eliminate any of the unnecessary steps and it's time to introduce the automation. So after doing that, you roll out the new system. Again, you want to make sure that all employees are trained on how to use it.

It's very important again, to keep an eye on the process. Just because it's working one day doesn't mean it's going to be working as expected down the line. So again, adjustings as you see fit to get the best results. And finally, you should evaluate the success of your automation efforts. You could look at key metrics. So how much time did you save by the automation, how many errors were reduced and what were the cost savings? Okay, so to wrap things up, strong system controls. These really are essential to ensure that you have accurate financial data. This helps you safeguard your assets and prevent fraud and automation. There are significant benefits to streamline the month end close. As we discussed, it reduces manual work and improves accuracy and provides better data for decision-making. And by implementing clear policies and leveraging technology, you're able to make your operations more efficient, reduce costs, and overall you can boost your performance. Thanks for everyone's time. Don't hesitate to reach out with any questions. And now I'll pass it on to Christine.

Christine Wu: Thank you Mike for that great update. Hello everyone. My name is Christine Wu and do a brief introduction. Altogether I have about 18 years of experience in accounting and financial services. I'm a partner with EA RESIG. Ea RESIG is a subsidiary of EisnerAmper that handles fund administration services exclusively for real estate funds. And in terms of the number of private real estate funds administered, we are the number one largest in the country in that regard. So thank you all for your continued attention. For my part, I will be speaking briefly on a recent rule issued by the Financial Crimes Enforcement Network or fencing, addressing anti-money laundering and countering the financing of terrorism program requirements for certain registered investment advisors and exempt reporting advisors. So under the new rule, investment advisors registered with the SEC and investment advisors that report to the SEC As exempt reporting advisors will now be considered financial institutions for the purposes of complying with the Bank Secrecy Act.

And there are some exceptions where the new rule will not apply and those exceptions are detailed on the FISA website. Now what does that mean? This means that those covered registered investment advisors and exempt reporting advisors are subject to the same AMLCFT obligations as other financial institutions. This final rule issue just a few months ago will go effect on January 1st, 2026, and FINON has delegated its examination authority to the SEC. Now let's discuss why this rule is important. The AMLCFT program requirements are designed to help prevent money laundering and terrorist terrorist financing activities within the financial industry. These activities can have serious consequences for global security and can undermine the integrity of our financial system.

So under the new rule, RIAs and ERAs are required to establish and maintain AMLCFT programs that comply with the Bank Secrecy Act. And to help navigate some of these requirements, here are some key steps to consider establishing a robust AMLCFT program that includes policies, procedures, and controls that detect and prevent money laundering and terrorist financing activities, implementing a customer due diligence process. That includes identifying and verifying the identity of customers, conducting ongoing monitoring of activities, and assessing the risk associated with each customer relationship, training employees on the requirements of AMLCFT program and the importance of detecting and reporting suspicious activities, maintaining accurate records of all AMLCFT activities, including suspicious activities, report filings, training programs, and due diligence processes. And lastly, we have monitoring for suspicious activities on an ongoing basis and file suspicious activities report with fencing whenever subject activities are detected that may indicate potential money laundering or terrorist financing. And of course, these reports must be filed in a timely manner and contain all relevant information about the suspicious activity.

So in a nutshell, the new rule issued by finon represents a significant step towards strengthening the integrity of the financial system and combating financial crime. This rule is not the first attempt by FIN or Congress to regulate AMLCFT activities in the investment advisor industry. And with the authority granted to the Treasury Department under the Bank Secrecy Act and the national security issues that form the basis of AMLCFT rules, it is likely that the final rule will hold up against any legal disputes. Obviously, the outcome of any potential legal challenges to the final rule is uncertain at this point, but its consistency with national security goals and current regulatory structures could enhance its legal standing. With that being said, we will send out more communication as we learn of new information regarding this topic, so stay tuned. Just lastly, Vincent has issued a fact sheet with all of this information in detail, the documents can be found on their website and I have also included a link here for reference. With that, I will pass the baton to our next presenter, Sean, for our tax update.

Sean Kyler: Thank you, Christine. Thank you everybody so far. Everything's been awesome. So we're going to talk about everybody's favorite topic taxes, and specifically what is going to be sunset in December 31st, 2025. So my name is Sean Kyler. I'm a tax senior manager with almost 15 years of experience with about four to five years specializing in real estate, and I'm located out of the Dallas office with Ryan Seas. So today we're going to discuss the TCJA and the phase out and sunset of certain provisions. I'm sure some of you already felt the depreciation and recovery changes from 100% in 2022 to 80% 20, 23 and so forth. We're also going to discuss this 20% small business deduction. The excess business loss limitations NOL carry forward and carry back and utilization rules along with some individual considerations for you to think about for yourself and also for your investors.

So as mentioned, bonus depreciation is beginning its phase out. We saw the start of this in 2023 where you could take bonus on 80%. You're going to see that decrease continue through 20 24, 20 25, and 2026, approximately 20% getting taken off every single year. Even with this bonus depreciation going down, I would still recommend getting cost segregation studies where you think it's necessary to try to divert some of that cost basis from longer live assets to shorter where it's possible. Another thing that will be sunset as of December 31st, 2025 is going to be the 20% small business deduction Section 1 99 A. That small business deduction essentially does decrease the effective tax rate from the 37% to somewhere around 29% ish. You take into account that additional 20% deduction with that termination, it might be time to consider entity changes and the corporate tax rate that will remain unchanged at 21%.

The combined corporate rate with the corporate tax and shareholder net taxation may be lower for than single level pass through tax rates. So it's just something to consider. Another thing to consider as well is REIT dividends and the current preference towards holding real estate assets, particularly real estate debt and reach structures. So REIT dividends have been given the super status for 1 99 A purposes and are always QBI income regardless of W2 or UBIA support for the underlying activity. So we'll see under the new administration where that sunset goes. Another thing to consider as well is the excess business loss limitation. When this was originally set up, it had a 250,000 for single 500,000 for married filing joint limitation that could be used to offset wages and other sources of income with active trader business losses that has since been adjusted for inflation. I believe 2024 is going to be 305,000 for single and 610,000 for married finally joint. Now this was originally supposed to be applicable after January 1st, 2018. However, as part of the CARES Act, the effective date was delayed three years. So this will stay in its current form through December 31st, 2028.

Next up on the list is NOL carry forward and carry back utilization under the pre TCJAN NOLs could be carried back two years and forward 20. However, the TCA generally provided that NO LS arising for tax years before January 1st, 2018, there were no carrybacks you could carry forward for 20 years and you could offset 100% of your taxable income for NLS arising tax years after 12 31 20 17. Again, still no carrybacks. You can carry forward the NOL indefinitely, but it can only offset 80% of taxable income. Now the CARES ACT did make certain modifications, one of which is in NO Ls generated in 20 18, 20 19, and 2020 could have been carried back five years.

But any NOLs that were created during 20 18, 20 19 and 2020 that carried into a taxable year beginning on or after January 1st, 2021, would be subject to that 80% taxable income limitation when it's being utilized post December 31st, 2020. Now, I think one of the things that will impact most of us immediately on this phone call is going to be individual considerations, one of which is the tax rates. So the tax rates for pre TCJA was 39.6%. However, under the TCJA, it's 37% that is set to expire on December 31st, 2025. In addition to the higher marginal tax rate, you're also going to see the standardized deduction go from its increase to level, which is about 30,000 married filing joint to about half that after December 31st, 2025. If it goes back to the pre TCJA levels, another thing that could also negatively change is that the child tax credit could also be lowered to 1000.

Currently under TCJA it was increased to 2000. It'll go back down to 1000. Now there are, in addition to the high tax rates, there are some additional changes that wouldn't be all that bad. We do have the mortgage interest deduction cap would increase. So right now the cap is you can expense interest on the 750,000 of home equity acquisition indebtedness and nothing for home equity debt. However, if this were to sunset, the limit would increase to 1 million of home acquisition and deadness and 100,000 of home equity debt can be deductible. The interest expense can be deductible. Another thing that would expire as well, which I know states have been working through PTs and things like that, is the state and local tax deduction, which is currently capped to 10,000 for married filing joint. If that cap is set to expire after December 31st, 2025, at which time it'll go away.

So one thing to think about is with the removal of this cap at the end of December 31st, 2025 is state pass through entity regimes. The added cost and complexity associated with them when the cap that they were designated to avoid is sunsetting. So just something to consider. Another thing is miscellaneous, I'm sorry, yes, the suspense of miscellaneous itemized deduction. The 2% itemized deductions, which is currently non deductible will be if expires will go back to pre TCJA law and again, be deductible. So those are a few individual tax considerations to think about. And next up I'm going to give it over to you, Astrid, for this polling question.

Astrid Garcia: Polling Question #5.

Sean Kyler: Alright, and while you go ahead and respond to that, we do have a few questions in here. Michael, I have a question for you. What happens if you're a small office and you don't have the necessary people to create a segregation duties?

Michael Shuster: So that would be challenging to have full segregation of duties. There's definitely still ways though that you can minimize risk and maintain some level of control. I'd say supervision and oversight, those would be key. But some other things that I can think of, rotation of duties. So you have a preparer and a reviewer, you switch off maybe on certain key tasks that would keep things fresh. It would make it easier when you're switching off to spot mistakes or fraud. So you can rotate maybe on bank reconciliations or AP review. Also complimenting controls. You could have someone outside of the accounting department, they can review financial activity. So maybe an owner or maybe a department head. You could have period audit internal reviews or you could even engage a third party to add an additional layer of security. So your external auditor or even outsourcing could be a solution. If you don't have enough people, you could outsource certain tasks that would ensure checks and balances. And I'd say the last one, which we talked about a lot in the presentation would be automation leveraging technology. So again, there's certain technology and software may have built in checks and balances. There's user access restrictions, sometimes definitely audit trails using software. And then again, manual processes would be reduced. All of this would prevent any type of mistakes, especially fraud.

Sean Kyler: Okay, awesome. Okay. Regularly throughout the year. Good to know. Thank you. And with that, that's the end of the presentation. We're going to go ahead and go through a few questions that we received during the presentation. Next up, Amy Neil, we do have a question about the impact of the insurance on real estate valuation.

Amy Menist: I'm so glad somebody asked. We actually do have a webinar coming up on January 29th that actually will highlight those specific questions and go over in great detail how insurance risk is actually impacting the value for real estate. So please be on the lookout for that. That's a great topic and so much more to cover than just this short amount of time left in a q and a. So,

Neil Axler: And spoiler alert, it's bad, it's bad for evaluations, the insurance rates are too high and they're terrible and it's terrible for your NOI.

Sean Kyler: Okay, I appreciate the summary real quick. Awesome. And Christine, another question came out here for you as well. Does this new fiend rule apply to non-US investment managers or advisors?

Christine Wu: I can take that. Great question. So non-US investment advisors or foreign located investment advisors is defined by the final rule as investment advisors whose principal office and place of businesses outside the United States. And the new rule applies to those foreign located investment advisors if they have advisory activities within the United States, if they provide advisory services to a US person or if they provide services to a foreign located private fund with the US investors. So if any of those criteria apply, the new rule will apply. Great question.

Sean Kyler: Okay,

Good to know. Good to know. And I got the question of do you expect the TCJA to be extended? I think part of it may be extended. The presidential party has control of the House and the Senate, so I do think that a portion of the TCJA may be extended. Not entirely sure which parts I don't know they do yet, but I would expect that a portions of it may be the individual side first and to be extended. But for now we're just waiting, listening to the media similar to what y'all are doing to see where we land in the future. I think we covered everything. Does anybody else have any other questions or concerns? If not, thank you for joining us. It was a pleasure teaching today and presenting. Feel free to reach out to any of us if you have any questions regarding tax, audit valuation, outsource automation. And Vincent,

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