“Many of our clients are not aware of the real estate transfer tax implications of restructuring because these transactions are often tax-free from a federal income tax perspective. By helping them understand this often unfamiliar tax, we can help our clients make transactions more tax-efficient.”
Significant Real Estate Transfer Tax Issues Avoided in Restructuring Transaction
BDO helped an East Coast private equity firm understand the real estate transfer tax implications of a contemplated restructuring associated with one of its portfolio companies, including the availability of exemptions in several states.
Top 3 Areas of Impact
- Confirmed tax exemptions in five states
- Identified substantial tax issues in multiple states
- Altering the restructuring steps saved ~$3 million in tax
The Challenge
A private equity firm’s portfolio company was restructuring its real estate holdings, which included various distributions and contributions of real estate to the ultimate entity. Following the restructuring, the real property would be leased back to the operating company.
The company was unaware of the real estate transfer tax issues in some states that stems from the limited availability of exemptions. The company thought that because the restructuring was tax-free for federal income tax purposes, the real estate transfer tax implications would be minimal.
Our Recommendations
Leveraging BDO’s expertise in the real estate transfer tax space, we provided consulting services in connection with the restructuring to advise the company of the availability of exemptions in several states. As a result, we identified a significant issue in one state that would have resulted in multiple incidences of tax, costing upwards of $4 million.
Results/Financial Impact
BDO worked with the client and its legal counsel to restructure the transaction as it pertained to the state with limited exemptions. As a result, we were able to limit the real estate transfer tax to a single incidence, which reduced the estimated tax liability by approximately $3 million.
The complex rules and compliance burdens associated with real estate transfer tax can be costly. Let BDO help you navigate these issues.
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