A federal expansion of tax breaks for businesses operating at a loss set off a flurry of calls between lawyers and real estate clients at the end of last week.
The Worker, Homeownership and Business Assistance Act of 2009, signed by President Obama on Friday, expands a stimulus provision to let businesses apply 2008 and 2009 losses against taxes paid in the prior five years, rather than the previous two. The original provision was to expire at the end of the year and applied only to small businesses and 2008 losses.
It's not just a life raft to clients, but a business development opportunity for their lawyers.
Morgan Miller Blair partner Christopher Hunter says he's helping home builders, developers, commercial property owners and other real estate clients analyze whether that means now is the time to, for example, sell off a distressed asset. And he expects the law to generate more work before the year's over.
Hunter, who chairs Morgan Miller Blair's real estate practice group, said most of the firm's clients are holding onto property that's worth less than it was before the recession. "There's some scrambling going on," he said. To make a deal qualify for the tax break, it has to close by the end of the company's fiscal year. For many, "you have seven weeks to make a decision about what property to sell and find a buyer willing to close." The tax refund money can be used for whatever the business needs, he said.
About half of tax lawyer Phillip Jelsma's clients are involved in the real estate industry. "It's not very often that we get to call and provide them good news in this economy," said Jelsma, with the San Diego office of Luce, Forward, Hamilton & Scripps.
On Friday he said he'd spoken to about a half-dozen clients in the last two days about the new law, including a general contractor with a real estate arm, which didn't qualify for the prior tax break because it exceeded a revenue cap in the prior version of the stimulus bill. There's no revenue cap in the latest bill.
"We will see some work because this will be a lifeline to a lot of real estate clients who would otherwise wither, go out of business, or shut down operations or lay off people."