Key Tax Issues for CA Investors


Tax planning and deferral in the wake of significantly rising capital-gains tax rates are the issues most concerning to California real estate investors

By Carrie RossenfeldSan Diegohare on facebo

Jelsma: “The capital-gains rate under the current administration went from 15% to 23.8%, so planning for a transaction’s ultimate disposition has become more important to clients.”

SAN DIEGO—Tax planning and deferral in the wake of significantly rising capital-gains tax rates are the issues most concerning to California real estate investors, Crosbie Gliner Schiffman Southard & Swanson LLP’s new partnerPhillip Jelsma tells exclusively. CGS3 has expanded its team of commercial real estate attorneys by adding the veteran tax lawyer. Jelsma was most recently a partner at McKenna Long & Aldridgeand is widely recognized as one of the state’s leading joint-venture and tax attorneys, with a nearly 30-year background in real estate exchange transactions, syndications, non-profit corporations and international tax planning. We spoke with Jelsma about his new role at the firm and some of the key tax-planning and joint-venture real estate issues his clients are facing today. What are your goals in your new role at CGS3?

Jelsma: I’m looking to add my tax practice and my corporate practice to the platform the firm has here. In some respects, it was an effort to allow my clients to move to a smaller firm with a lower billing rate, but it was more important to CGS3 to add a new skill set that they didn’t have. My skills in doing joint ventures and other specialties at Luce Forward and McKenna Long were able to broaden the practice. Today, you not only have to have a lot of real estate attorneys in a practice, but you need some to have the capability to do the tax planning, analysis, entity formation and management that wraps around the real estate. They were at the property level, and my goal was to be able to move up a level and offer clients here the ability to do the entity formation and planning as well. What separates CGS3 from other firms with which you have been affiliated?

Jelsma: They are different from the standpoint of the fact that they focus on one particular industry—real estate. My whole practice up to now has basically been at a full-service firm where you have a lot of different industries and businesses. These guys have a focus in one particular area and seem happy to work within that one particular area and expand the services they can offer to their real estate clients. What are the most significant issues joint-venture real estate investors are facing today?

Jelsma: There tends to be a commonality in that most of them are looking to financing sources to help them provide equity to either acquire or develop the property. As a result, in many respects, most of these ventures are now in the form of LLCs, where you’re really trying to marry the property developer or owner with the equity sources and strike a balance between those two in order to have a deal that’s successful for both of them. What are the most significant tax issues real estate investors are facing today?

Jelsma: The capital-gains rate under the current administration went from 15% to 23.8% because the Medicare tax came in a year ago, and the capital gains rates for some taxpayers went up. Knowing that California doesn’t have a preferential rate on capital gains, you’re looking at a 35% to 40% capital-gains tax on transactions and a higher rate for ordinary income. So, most clients are interested in tax planning and tax deferral. Really planning during the sales transaction for the ultimate disposition has become, in many respects, more and more important to clients and often involves preparing for and structuring for a 1031 exchange.


View Source: