Why The Tax Law Might Turn Your Lenders Into Investors

January 29, 2018
By Erika Morphy

WASHINGTON, DC–One provision of the Tax Cut and Jobs Act, namely section 163(j), has implications that could turn lenders into investors. The end result will be the same — money for borrowers — but the nuances of the tax bill could mean that some borrowers will need to structure their deals differently. Fortunately,  most lenders should be willing to oblige.

Under Section 163(j) interest deduction will be limited to 30% of adjusted taxable income, with the exception of electing real property trade or business. One ramification, according to Montgomery McCracken Senior Tax law partner Gary M. Edelson, is that real estate limited partnerships and LLCs might use preferred membership interests or preferred LLC interests with a high yield in lieu of debt financing.


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