Tax benefits, such as depreciation and 1031 exchanges, are some of the mainstays of commercial real estate. For many investors, this reduces the annual tax burden as well as the transactional tax burden. These savings may greatly increase the annual and compounded investment returns over the years. Commercial real estate continues to be an excellent investment, especially as interest rates are at an all-time low and retail tenants are once again expanding. If you’re interested in purchasing a commercial property, it’s helpful to have an experienced investment broker on your side to help advise about the market and investment opportunities. Understanding the intricacies of real estate tax reform is challenging, and it can be a full-time endeavor to keep up with the latest changes. Real estate tax reform is on the horizon, and here, we share the details of the proposed changes to help you make informed decisions.
A Preview of What to Expect from Real Estate Tax Reform
The Ways and Means Committee is still in the process of drafting the new bill, so these proposals haven’t become law yet. However, here’s what’s in the works:
- Section 1031 like-kind exchanges are expected to be retained.
- Retain the stepped-up tax basis upon death. The top marginal individual tax rate could be increased to 39.6%, with capital gains rates increasing to 25% with a 3% surcharge for individuals or trusts with a modified AGI of $5M and above.
- Section 199A 20% pass-through deduction capped at $500K for joint return (i.e., max $2.5M of QBI eligible for deduction).
- SECA/1411 tax (3.8%) is now applicable to all income (including active income of real estate professionals).
- REITs: Relief on related party double-downward attribution, prisons are bad income.
- A modified approach to the carried interest rules in the current Section 1061. (Too many changes to include here.)
The proposed changes highlighted here are just a brief overview of what may become law in the future, and are subject to revision. If you’d like to invest in commercial real estate, having a seasoned tax professional on your side to help you navigate the changing landscape of tax law is beneficial. Additionally, a 1031 exchange specialist will be invaluable in assisting you achieve your investment goals. As the year-over-year market leader in the Rocky Mountain Region, our team is the premier choice in investment real estate sales. Our commitment to cutting-edge technology and niche expertise ensures the highest level of client satisfaction. When you’re on the search for your next investment property, we’re here to help you minimize your risk and maximize value. Please contact us to schedule a consultation.