Burr Alert: The "Real Dirt" Tax Reform and the Real Estate Industry
Just prior to 2017 year end, Congress passed tax legislation that legislators and tax pundits alike describe as the most significant overhaul of the Internal Revenue Code since the 1986 Tax Act championed by President Ronald Reagan. President Donald Trump signed that legislation into law shortly thereafter. It is not surprising that tax professionals are feverishly at work analyzing the impact of the Tax Cuts and Jobs Act of 2017 ("TCJA") on clients and industries. Similar to the 1986 Tax Act, expect the TCJA to significantly impact real estate businesses. However, that impact likely will be the exact opposite of the industry impact of the 1986 tax legislation.
A Brief Summary of the TCJA Provisions Affecting All Businesses
Many businesses view the recent tax reform positively in terms of development for the U.S. economy and businesses. While certain expenses may no longer be deductible, most corporations favor trading the loss of those deductions in exchange for a maximum corporate tax rate of 21% (down from 35%). Additionally, if the business is organized as a pass-through tax entity (where the tax on business income is paid by the owners and not the operating company), trading the loss of deductions in exchange for a reduction in the effective Federal income tax rate imposed on the business income passing through to the owners of approximately 10% to 12% (from a maximum rate of nearly 40% to something closer to 30%, perhaps even less) is a significant benefit. Most of the rate reduction for pass-through entities comes from the new 20% qualified business income deduction (which is discussed in more detail below). Generally, the real estate industry benefits just like any other business from the tax rate reductions even before considering those provisions of the TCJA which specifically impact real estate businesses.
Download the full article, "Burr Alert: The "Real Dirt" Tax Reform and the Real Estate Industry" written By Jim McCarten and Scott G. Miller.