How Looming Tax Reforms Might Impact CRE Industry

Written by: Beth Mattson-Teig | National Real Estate Investor

Tax reform has become a central focus on the “what’s ahead” discussions swirling around President-elect Trump’s agenda. That topic has moved to the forefront for good reason. The commercial real estate industry, and the country, could be on the verge of the first substantive tax reform since 1986.

Commercial real estate did not come out as a big winner in the Tax Reform Act of 1986, and reforms have been on the agenda for years with no tangible changes to the tax code. That could very well change under a Trump administration with Republicans in control of the House, Senate and White House for the first time in a decade.

“I think there is definitely rational reason for optimism on tax reform,” says John Gimigliano, head of the federal tax legislative group at the audit, tax and advisory firm of KPMG LLP. The cautionary note is that even with those planets aligned there are a million ways that tax reform could fall apart, says Gimigliano.

The overarching theme behind current tax reform is a desire to reduce overall tax rates. There is an especially keen focus on reducing the corporate tax rate from its current level of 35 percent down to 20 percent or even 15 percent. “That is largely driven by a goal of making U.S. businesses more globally competitive,” says Gimigliano. On the individual side, another goal is to dramatically simplify the process of complying with the tax code.

“The Treasury Department after President-elect Trump takes office will have the opportunity to significantly impact a number of areas important to the real estate industry,” adds Tanya Thomas, a tax managing director with BDO USA. Current proposals include reforms that could both negatively and positively impact commercial real estate investors. Some of the key proposals that the industry is watching relate to changes in carried interest, property expense deductions and pass-through income.

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