This tax reform legislation was recently passed in the House and Senate, a bill of $1.5 trillion. It is the first major change of the U.S. tax code in 31 years.
The effects that the tax law will have on real estate investors were predicted to be somewhat mild, but the effects are still important to know. It will be helpful for real estate investors to know what to expect, and what implications the tax reform will have.
It’s expected that the tax reform will have “relatively benign” effects for commercial and general real estate investments. Regardless, here we go over some of the important takeaways from what’s expected to result from the new law.
If you want to learn more about the future of CRE, be sure to check out Technology Continues to Change Commercial Real Estate. The key thing to remember is that the tax law is predicted to significantly boost the success of real estate investment.
Changes for real estate investment
The tax reform includes the 1031 exchange provision remaining in place. Commercial property landlords will also still be entitled to a full mortgage interest deduction. The tax reform reduces the depreciation period for multifamily and commercial properties from 27.5 years to 25 years.
Predictions show that multifamily housing will likely benefit from a discouraging of homeownership. The new law will make it more financially feasible for tax filers to take advantage of the increased standard deduction, instead of relying on itemized deductions such as mortgage interest. And, while the new tax reform will still allow for mortgage interest deductions, it eliminates the deduction for home equity loans. A new $10,000 cap on deductions for state and local taxes are likely to put heavier taxes on high-tax states and high-tax cities, such as New York and California.
With the presidential election and political shifts over the past year, there has been a high level of uncertainty, and a large number of investors moved to the sideline. So, as the tax reform is put into place, uncertainty will likely drop.
The tax reform contains noteworthy tax-cuts for corporations and LLCs. Generally, the new tax laws should help investors understand the implications of the reform and how it will affect them and their investments, possibly prompting them to reconfigure their portfolios.
Timeline of the tax reform
The new tax structures will apply to 2018, for tax filing in 2019.
For more information on the tax law timeline, check out this brief article.