Affordable housing partners no longer have to file a technical termination tax return when they change ownership.
The Tax Cuts and Jobs Act, signed on December 22, 2017, repealed the line in the U.S. Tax Code (Sec. 708(b)) that stipulated the technical termination process. As of January 1, 2018, partnerships continue as normal, even when interest changes more than 50 percent in a 12-month period.
Technical Terminations in the Past
Technical terminations were defined as any sale or transfer of more than 50 percent of a partnership or LLC within a 12-month period. This term was used only in the tax realm to represent an automatic transfer of ownership and assets from the “old” partnership to the “new” one.
After a technical termination, the partners were required to file a tax return within 75 days or else face late filing fees.
Confusion arose when partners forgot to inform their tax preparer of the change in ownership until the following year’s tax return. By that point, it was often past the technical termination filing date, and the owners were penalized.
Partnership Changes Going Forward
General and Limited Partners of affordable housing properties no longer have to file a tax return when their ownership interest changes more than 50 percent. However, if partnership changes take place, tell your tax preparer right away, because they will help you decide how to allocate the property’s profit or loss for that tax year to both the exiting and incoming partner.
In addition, partners should keep their auditors up-to-date with changes in contact and account information to avoid delays during the annual audit.
Though the new law has eliminated a complicated process, partners should still stay in constant contact with their tax preparers during changes in ownership. This helps everyone stay on the same page and create a more complete and accurate picture in the financial statements.
We’re here to serve you and help you understand these changes. If you have any questions about your specific situation, feel free to reach out to us online or on the phone.