What Real Estate Investing Strategies Will Benefit Most Under the New Tax Plan?

John Engle in Seeking Alpha has some really interesting perspectives on what real estate investing strategies could benefit most form the recently passed changes to US tax law, The Big Winner Of The Tax Bill: Commercial Real Estate.

Pass-through entities such as partnerships and limited liability companies are set to benefit greatly from the new law….Real estate investment is almost always conducted through such entities, so it will be a sector to benefit richly after the late-stage inclusion of property investment under the provisions of the bill.

Some commercial real estate, especially non-residential, will benefit from the new law’s expanded coverage and scale of Section 179 of the United States Internal Revenue Code, which covers certain kinds of depreciation deductions. Specifically, Section 179 states that a taxpayer may choose to deduct the cost of certain types of property as expenses, rather than capitalizing the cost of the property. The new tax law will double the current dollar limitation on the amount that can be expensed each year from $500,000 to $1 million.

The impact of the changes to Section 179 will depend on the strategy and sectoral exposure of the particular real estate investor. Already the most popular strategy among private real estate investors, value-add strategies will undoubtedly get even more attention, especially non-residential value-add scenarios.

 

Alistair M. Nevius, How tax overhaul would change business taxes, has some excellent insight into how Section 179 will change.

Sec. 179 expensing:Β The act increased the maximum amount a taxpayer may expense under Sec. 179 to $1 million and increased the phaseout threshold to $2.5 million. These amounts will be indexed for inflation after 2018.

The act also expanded the definition of Sec. 179 property to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging. It also expanded the definition of qualified real property eligible for Sec. 179 expensing to include any of the following improvements to nonresidential real property: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems.

Looks like it will be an interesting start to 2018 in the commercial real estate space. I think we will see some tremendous opportunities across multiple sectors.