New tax laws vexing industry.

A flurry of recent legislation at the federal, state and city levels has significantly changed the tax planning landscape for conducting real estate business in New York.

Although federal tax rates are down both the state and the city have increased taxes.

"The federal government giveth and the state taketh away," said Lary Wolf, a partner at Roberts & Holland LLP, at the REBNY tax law changes seminar last week at the Cornell Club.

The details of the implementation of the various changes and, in some cases, the interaction between the federal changes and the New York changes, have generated opportunities and pitfalls that warrant careful study and creative tax planning.

Drew Kanfer, CPA and business advisor for Margolin, Winer and Evens LLP attended the seminar.

"The tax rules with respect to real estate have evolved to the point where they are extremely complicated, presenting many obstacles and 'traps' for all but the few who deal with them on a very regular basis," Kanfer said. "Real estate firms will be relying even more on their tax professionals for guidance in all tax related matters."

Creating additional complexities and record keeping requirements is the state's estimated tax regime imposed on pass-through entities, interest, and royalty expense disallowances, and requirement that New York state income tax be paid by nonresident individuals at the time of certain real property transfers.

This will assuredly slow down the real estate transaction, said Melvin Mitzner, senior vice president and chief underwriting counsel to Commonwealth Land Title Insurance Company, LandAmerica Financial Group, Inc. and Lawyers Title Insurance Corporation.

"This issue is, how do we get the tax paid and go ahead with the transaction?" Mitzner said. "There's no way a tax law can affect the record of a deed."

Both the city and state have also increased income tax rates for owners without non-resident partners, which would affect an owner's federal income tax by increasing the probability of an alternative minimum tax. An AMT is an extra tax some people have to pay on top of the regular income tax. The idea behind this tax was to prevent people with very high incomes from using special tax benefits to pay little or no tax.

"While the increase seems small at first glance, the effect can be significant when applied to gains on sale and even without a significant transaction the increase in tax is more likely to cause a federal AMT," Kanfer said.

Wolf, who said the law is unconstitutional, is legally contesting the non-resident partners tax law.

He previously filed suit and was successful against the state's commuter tax law, when the state legislation repealed the commuter tax for only residents living in New York, but outside of New York City still had to pay the tax. The non-resident partners suit is in violation of the Privileges and Immunities Clause of the U.S. Constitution, as well as the Due Process, Equal Protection and Interstate Commerce Clauses.

No one, however, is complaining or contesting the new federal tax law changes that will benefit owners.

The new federal law increases and extends the bonus depreciation enacted last year under the Job Creation and Worker Assistant Act to stir a sluggish economy. The law increases the bonus from 30 to 50% for property acquired after May 5 and liberalizes some of the requirements for property eligible for the 30% bonus under the 2002 Act.

"This will provide substantial additional tax benefits for capital improvements that are otherwise depreciable over as much as 39 years," Kanfer said.

Those who are selling their property also will benefit under a federal tax change as it relates to the capital gains tax. "The 5% reduction in the rate applied to the economic gain is likely to be a substantial benefit for owners looking to sell their property," Kanfer said.