Tax Issues related to Federal Grant money

Taxes General Forum - Tax professionals meeting place and answers to queries. (Moderated) 

Yahoo!   Google   Windows Live   del.icio.us   digg   Netscape

Subject Author Date Tax Issues related to Federal Grant money Bill 08-24-2009  Re: Tax Issues related to Federal Grant money Brew1 08-25-2009  Re: Tax Issues related to Federal Grant money Bill 08-26-2009
Posted by Bill on August 24, 2009, 6:06 pm Please log in for more thread options A friend is part of an investor group who have received a Federal Grant which must be used for purchase and rehab of residential property to be rented to low-income people for a period of at least 20 years.   The following questions have been posed: 1,  Is the Grant considered _Income_ for tax purposes?   It seems to me that the answer would be no -- but rather a contractual investment with limitations.  Any property purchased and improved would have a zero cost basis after having fulfilled the contractual obligation over the required 20 years, when it is subsequently sold. (Note:  There is a specific clause which requires repayment of any grant funds which are converted by sale of a property before the full 20-year obligation is met.) 2.  Would the purchase price and rehab costs be depreciable?   If the grant is a conditional loan until the 20th year has concluded, at which point it converts to a "gift" awarded for completion of the contractual obligation -- then until that point, it's money at risk, and depreciation expensing ought to be allowable, just as would apply to borrowed money used to purchase and operated a rental facility. Presumably, once the grant is perfected and upon sale, there would be a new issue: Should the previously-taken depreciation then be subject to "recapture" via Form 4797? Seems logical to me. Having these questions posed, however, leads to a prudent man's need for guidance from those who might know more.  Is there anyone out there who knows of any specific IRS regs or guidance on treatment of Federal Housing  Grants and/or tax court rulings which might weigh on this matter? Bill -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Brew1 on August 25, 2009, 10:12 am Please log in for more thread options On Aug 24, 6:06 pm, an_ordinary_guy_...@hotmail.com (Bill) wrote: > A friend is part of an investor group who have received a Federal Grant > which must be used for purchase and rehab of residential property to > be rented to low-income people for a period of at least 20 years.   > > The following questions have been posed: > > 1,  Is the Grant considered _Income_ for tax purposes?   > > It seems to me that the answer would be no -- but rather a contractual > investment with limitations.  Any property purchased and improved > would have a zero cost basis after having fulfilled the contractual > obligation over the required 20 years, when it is subsequently sold. > > (Note:  There is a specific clause which requires repayment of any > grant funds which are converted by sale of a property before the full > 20-year obligation is met.) > > 2.  Would the purchase price and rehab costs be depreciable?   > > If the grant is a conditional loan until the 20th year has concluded, > at which point it converts to a "gift" awarded for completion of the > contractual obligation -- then until that point, it's money at risk, > and depreciation expensing ought to be allowable, just as would apply > to borrowed money used to purchase and operated a rental facility. > > Presumably, once the grant is perfected and upon sale, there would be a > new issue:  Should the previously-taken depreciation then be subject to > "recapture" via Form 4797?  Seems logical to me. > > Having these questions posed, however, leads to a prudent man's > need for guidance from those who might know more.  Is there anyone > out there who knows of any specific IRS regs or guidance on treatment > of Federal Housing  Grants and/or tax court rulings which might weigh > on this matter? > > Bill > The only instance that I have encountered grant money to a business being tax-free was when a client of mine who is blind received a government grant for his small business (sole proprietorship). What is the business form of the "investor group"? -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Bill on August 26, 2009, 12:28 pm Please log in for more thread options brew.one@gmail.com (Brew1) posted: >On Aug 24, 6:06 pm, >an_ordinary_guy_...@hotmail.com (Bill) wrote: >[OP omitted.] >The only instance that I have encountered >grant money to a business being tax-free was >when a client of mine who is blind received a >government grant for his small business (sole >proprietorship). What is the business form of >the "investor group"? The answer to your question is: An S Corporation. Remember, this is not an outright grant: it is conditional -- and only becomes final after completion of twenty years of maintaining low-income housing at below-market rents. The government's check for purchase of the property is actually made payable to the title company. Bill -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted Assistance Grant March 19, 2008, 9:49 pm Is this educational grant tax free? January 7, 2007, 10:51 pm Restricted Stock Grant May 7, 2007, 1:29 pm Fulbright Grant - Tax Home February 18, 2008, 6:12 pm Tuition Grant misreported wrong year and incorrect exempt status February 4, 2009, 6:42 pm non related dependent March 16, 2008, 12:44 am Estate related questions March 4, 2007, 9:09 pm Katrina related questions April 15, 2007, 1:23 pm work related expenses October 14, 2008, 7:37 pm Employee Leasing and related questions. March 30, 2007, 3:56 am