Elaine Misonzhnik has an excellent look into how the new tax plan, could be a boom to certain segments of the real estate industry and create a drag on others, The Tax Bill Is a Clear Boon to the CRE Industry. Will It Prove Too Much of a Good Thing?
According to a white paper produced by research firm Reis Inc., commercial property owners “are easily the biggest beneficiaries of this tax bill.” The 1031 exchange provision remains in place.
Commercial property landlords will still be entitled to a full mortgage interest deduction, in addition to benefitting from the reduced corporate tax rate of 21 percent.
The tax bill reduces the depreciation period for multifamily and commercial properties to 25 years.
Previously, the depreciation period for multifamily properties was 27.5 years and for commercial properties 39 years.
Pass-through entities such as LLCs and partnerships, commonly used in the commercial real estate industry, will benefit from a lower tax rate. Partners in such entities will now be taxed at their individual tax rate less 20 percent deduction for business expenses.
Reis predicts the new tax plan will likely be a net positive for the multifamily sector by discouraging home ownership.
Reis researchers argue the new tax bill may spur a construction boom, as it will allow businesses to immediately expense multiple types of asset purchases, including real estate.
This may be particularly true in the growing e-commerce sector, where companies might now be able to take advantage of the new expensing rules to build more of their own warehouses.