presumably in the case of
depreciable real estate, an increase in income tax basis--on death, absent further planning.
We determine FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts ("NAREIT"), as net income attributable to common stockholders (computed in accordance with GAAP), excluding real estate-related depreciation and amortization, impairment losses on
depreciable real estate, gains or losses on the sales of
depreciable real estate, and after adjustments for unconsolidated ventures.
NAA/NMHC have urged such an approach to preserve "stepped up" basis, which is critical for heirs of
depreciable real estate.
In it's third quarter report, Reckson reported net income of $9.3 million, or diluted earnings per share (EPS) of $0.11 for the third quarter of 2006 including $2.1 million charge for the aforementioned compensation plan, as compared to $113.6 million, including $96.4 million related to gains on sales of
depreciable real estate, or diluted EPS of $1.37 for the third quarter of 2005.
The boxed example illustrates the outcomes of a sale of
depreciable real estate under current law and two additional circumstances--the Bush proposal and under a higher ordinary income tax rate.
No election is needed to avoid two computations for MACRS 27.5-year real property (residential rental property) or MACKS 39-year real property (i.e., most other
depreciable real estate).
Assume Z contributes
depreciable real estate to the XYZ partnership in exchange for a one-third interest in partnership capital, profits and losses.
The news system assigns depreciable lives of 3 years for most vehicles, 5 years for most equipment, 10 years for certain public utility property, and 15 years for most
depreciable real estate and some long-lived public utility property.
This is essentially depreciation recapture realized on the sale of
depreciable real estate; however, an individual with an ordinary income tax rate below this special rate would only pay the ordinary rate.
Reckson reported net income allocable to common shareholders of $113.6 million, including $96.4 million related to gains on sales of
depreciable real estate, or diluted earnings per share (EPS) of $1.37 for the third quarter of 2005, as compared to $8.8 million, including $2.2 million related to gains on sales of
depreciable real estate and the aforementioned $6.7 million accounting charge, or diluted EPS of $0.13 for the third quarter of 2004.
* Treatment of impact fees and similar costs incurred during the development and construction of
depreciable real estate (Rev.