Tax Reform Provisions Important to CRE

October 17, 2017

 

Do you own commercial real estate? House leaders took a significant step forward with tax reform efforts earlier this week with the release of the Tax Cuts and Jobs Act, H.R. 1.

 

 

While many details of the legislation have yet to be resolved, there are several agreed-upon major provisions of interest to commercial real estate:

  • Reduction of the number of tax brackets from 8 to 4: 12, 25, 35 & 39.6%, the top rate of 39.6% would apply to income levels of over $500,000 for individual and $1 million for couples. 

  • Reduction of corporate tax rates to a maximum of 20%, down from the current rate of 35%

  • A top rate of 25% applied to the business income of small and family-owned businesses conducted as sole proprietorship's, partnerships and S-corps. The framework contemplates that the committees will adopt measures to prevent any re-characterization of personal income taxed at ordinary rates into business income taxed at the lower pass-through rate, done solely for the purposes of avoiding taxation.

  • Immediate expensing for new investments in capital assets, not to include structures, but leaving open the possibility for increased expensing for small businesses and modernizing current depreciation schedules for assets not provided immediate expensing.

  • Deductibility of interest on debt is maintained for those involved in real property trades & businesses, including CRE development. 

  • Elimination of the Alternative Minimum Tax.

  • Estate Tax threshold is doubled and phased out entirely by 2024, the step-up in cost basis on assets is retained. 

  • Section 1031 like-kind exchanges are preserved for real estate.
     

  • Current tax treatment of carried interest is preserved. 

Starting Monday, the House Ways & Means Committee will begin marking up the legislation. The President has expressed his desire to accelerate tax reform and sign a bill before the end of the year. I will keep you posted things progress. 

 

 

Curious as to how this may affect your portfolio? Contact me directly at (949) 263-5303 or ChrisD@voitco.com 

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