How New Tax Law Changes are Sweeping the Real Estate Industry

The recently enacted Tax Cuts and Jobs Act is a sweeping tax package. Below is a look at some of the more important elements of the new law that have an impact on the Real Estate industry. Unless otherwise noted, the changes are effective for years beginning in 2018 through 2025.

  • Mortgage interest on loans used to acquire a principal residence and a second home is only deductible on debt up to $750,000 (down from $1 million), starting with loans taken out in 2018. There is no longer any deduction for interest on home equity loans.
  • The itemized deduction for state and local income and property taxes is limited to a total of $10,000 starting in 2018. Businesses are not subject to this limitation.
  • The new tax reform law allows for 100% expensing of assets other than real estate (qualifying property) after September 27, 2017 through December 31, 2022. This means you can expect to see these benefits take effect for the 2017 tax year.
  • The definition of “Qualified Real Property” has expanded to include items such as roofs, HVAC systems, fire alarm systems and security systems.
  • The net operating loss will be limited going forward to 80% of the taxpayer’s current taxable income.
  • The Estate Tax Exemption has been increased to roughly $11.2 million or $22.4 million for married couples.
  • Real Estate owners, developers and operators benefit from the pass-through business provision, resulting in lower tax rates.
  • Confusion over the new standard deduction vs. SALT takes may cause prospective buyers to delay buying a home and renew their apartment leases.
  • The 1031 exchanges provision was preserved for the real estate sector, potentially leading to an increase in investment.
  • The corporate tax rate which previously ranged from 15% to 35% will now be a flat 21%.
  • The IRS gives you the ability to opt out of the limitation on business interest deduction. However, the downside is that depreciation lives will be reduced.

We understand these new tax law changes may be confusing, and we are here to help. In addition to the above individual tax highlights affecting the real estate field, there are significant changes that will also impact business taxes. If you would like to discuss these changes, or would like more information on the Tax Cuts and Jobs Act, please feel free to contact one of our accountants at (973) 328-1825.