The Tax Cuts and Jobs Act - What it Means for Commercial Real Estate
Mar 11, 2018
Major Provisions Affecting Commercial Real Estate
- The final bill retains the current Section 1031 Like Kind Exchange rules for real property. It repeals the use of Section 1031 for personal property, such as art work, auto fleets, heavy equipment, etc.
- The exclusion of real estate from the repeal of 1031 like-kind exchanges is a major victory for real estate stakeholders, who had fought hard to preserve the provision for several years, and against long odds.
- The final bill includes the House and Senate language requiring a 3-year holding period to qualify for current-law (capital gains) treatment.
- Again, real estate stakeholders prevailed against long odds to preserve the incentive of capital gains treatment for carried interests in the final legislation.
Cost Recovery (Depreciation)
- The final bill retains the current recovery periods for nonresidential real property (39 years), residential rental property (27.5 years) and qualified improvements (15 years). The bill also replaces separate definitions for qualified Restaurant, Leasehold, and Retail improvements with one definition of “Qualified Improvement Property.”
Qualified Private Activity Bonds
- The final bill retains the deductibility of qualified private activity bonds used in constructing affordable housing, local transportation and infrastructure projects and for state and local mortgage bond programs.
- The House bill would have eliminated the use of private activity bonds.
Low Income Housing Tax Credit
- The final bill retains current law. However, a lower corporate rate will negatively impact the value of the credits in the future, and will result in less low-income housing being developed.
Rehabilitation Credit (Historic Tax Credit)
- The final bill repeals the current-law 10% credit for pre-1936 buildings, but retains the current 20% credit for certified historic structures (but modified so the credit is allowable over a 5-year period based on a ratable share (20%) each year).
- The House bill would have entirely eliminated the Historic Rehabilitation Credit.
Provisions Not Included in the Final Bill
Rental Income Subject to Self-Employment Tax
- The House-introduced bill would have subjected rental income to self-employment taxes. This provision was dropped from the House (and final) bill.
Source: “The Tax Cuts and Jobs Act - What It Means for Homeowners and Real Estate Professionals.” National Association of Realtors, 20 Dec. 2017, narfocus.com/billdatabase/clientfiles/172/19/3062.pdf.