Sunday, March 04, 2012

Forbes: Tax Shelter from Hell - U.S. Steel Tower in Pittsburgh

I was going to label this 'Beyond grad school public finance', but I thought that would make folks' eyes glaze over.  So this is one of those convoluted policy things in Pennsylvania that make it too hard to figure out what side you are even on.  The angles and implications of this are so wound up that the public can't make sense of it, nor even notice.  Yet the $ implications for city, state and taxpayer are huge.... and according to this piece the world should notice when it comes to investing in Pennsylvania I guess. 


So, I get ahead of myself. First try and get through this from Forbes last week:  The Tax Shelter from Hell - U.S. Steel Tower in Pittsburgh

So remember the Steel Building's recent sheriff sale/transfer that generated no transfer tax revenue for the City of Pittsburgh? We've addressed that a bunch here in the past.  Some are trying to plug this particular loophole I read, though there are others to address as well.  Any progress there??? Becoming a bigger and bigger issue since by all accounts the commercial real estate market is heating up.

So what I get out of this begins with the observation that the state may in fact have a real incentive to not fix the tax loopholes that prevented the city and school district from getting the transfer tax they could get from a real estate transaction like this.  Structuring this as a sheriff sale transaction prevented the city and school district from getting transfer tax revenue, but may have resulted in the state being able to collect real tax $$ that they would not have otherwise been able to get.  Or so I think, I have to admit this is all a bit beyond me as well. What I think it is saying is basically everyone loses on the sheriff sale tax loophope in the transfer tax... everyone except for the state itself.  And along the way they may provide a disincentive to investment across PA along the way.  But to be clear, I am not sure on any of that.  Sounds like even the tax lawyers don't quite agree on any of this.  Still a multi-million dollar a year issue for the city of Pittsburgh that gets far less attention than things worth orders of magnitude less.

Anyway... lots of stuff in that worth reading.  Thought I guess it is only for a certain jaded reader.  Note that the original Forbes article there which came almost a week ago has had zero tweets.

9 Comments:

Blogger Peter Reilly said...

That US Steel story was not one of my popular and I appreciate you noticing it. I think the out of state investor would have had the same problem even if it had been a straight sale. The problem arises from the fact that the Pennsylvania income tax divides incoem into several buckets and a loss in one bucket does not reduce the income in another. In this case phantom interest deductions created a phantom gain. The two would wash on the federal return but not on Pennsylvania.

Sunday, March 04, 2012 12:28:00 PM  
Anonymous The Wiz said...

There goes my tax shelter for all my gas royalties!

Sunday, March 04, 2012 6:03:00 PM  
Anonymous The Wiz said...

Perhaps all these machinations explain why so many commercial buildings sit empty, sometimes for decades. If so,I would hope that these tax shelter schemes in real estate would all be abolished.

Sunday, March 04, 2012 10:19:00 PM  
Blogger The Kid said...

Would you like to get more visitors from Pittsburgh?

Submit your blog in zeole.com/pittsburgh . This is a one time submission. This would automatically submit a preview of your future blog posts in Pittsburgh, with a link back to your blog.

Enjoy more traffic from Pittsburgh :-)

Monday, March 05, 2012 3:58:00 AM  
Blogger Peter Reilly CPA said...

Wiz

The Tax Reform Act of 1986 took most of the fun out of real estate tax shelters by lenghtening depreciable life and the passive activity loss rules. The 600 Grant Partnership was formed before 1986

Monday, March 05, 2012 9:18:00 AM  
Anonymous MH said...

Trying to get more Pittsburgh readers sounds like a great idea. Pittsburgh ranks very high in innovation as measured by absurdly indirect indicators.

Monday, March 05, 2012 9:39:00 AM  
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