Category: Taxes

How the Biden Administration’s Proposed Tax Plan Could Affect Real Estate

There’s no telling what policies from President Biden’s new tax plan will pass through Congress, but what we do know is that there are some key items you should be aware of if your business is in the real estate industry.

President Biden’s $1.8 trillion “American Families Plan” (AFP) proposal presents tax policy changes that will greatly affect the real estate industry, including an increase in the capital gains tax rate and limits on the use of 1031 like-kind exchanges.

To understand the gravity of the impact these proposed tax changes will have on the real estate sector, it is important to understand the Tax Cuts and Jobs Act (TCJA). In 2017, the real estate industry caught a much-needed tax break when the TCJA was signed into law. The new bill unlocked various benefits and substantial savings for the real estate industry, including, but not limited to, a decrease in the corporate tax rate, a 20% income exclusion for owners of flow-through entities, a decrease in the highest personal marginal tax rate, and that income earned on carried interest held less than 3 years was taxed as short-term capital gains.

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Trump Tax Saga Shines Spotlight on Benefits of CRE Ownership

Depreciation, debt write-offs, tax credits and other measures are among the tax avoidance benefits inherent in the sector.

It may seem like a lifetime ago, but before news of the ongoing COVID-19 outbreak involving President Trump, White House staffers, Republican politicians and others, the New York Times stirred up a political firestorm surrounding President Trump’s personal finances with a new investigation revealing a staggering amount of business losses over the past two decades. The headline grabber was that he paid just $750 in personal federal income taxes in 2016 and 2017 and nothing in 11 of the 18 previous years. Additionally, the article said he claimed a total of $1.4 billion in losses from his core businesses for 2008 and 2009 and collected a $72.9 million refund for the 2010 tax year.

The article is just another chapter in the ongoing saga of President Trump’s personal tax returns, which he has chosen not to release to the public as most political candidates have done in recent decades. The New York Times piece amplified earlier reporting it had done in 2019 alleging that President Trump had reported $1.17 billion in losses from 1985 to 1994. As with those findings, the new revelations have put the tax benefits of commercial real estate ownership firmly in the spotlight.

President Trump has said publicly that he has paid millions in taxes, including property and payroll taxes. At the same time, he also has been candid in admitting he has utilized tax credits, deductions and real estate depreciation to offset income. For example, the Trump Organization received $40 million in Federal Historic Tax credits for its 2014, $200 million renovation of the Old Post Office just blocks from the White House into the 272-room Trump International Hotel on Pennsylvania Avenue.

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The Masses Are Drawn Toward Funds Chasing Real Estate Tax Breaks

Money managers are finally having some success enticing clients to invest in Opportunity Zone funds.

(Bloomberg)—The wealthy masses are starting to bet their money on a new U.S. tax break after more than a year of indecision.

The latest data point: Bridge Investment Group announced Tuesday it has $509 million that it is deploying in projects in opportunity zones. The money was gathered from about 500 investors, according to a person with knowledge of the matter, who asked not to be identified discussing the private fundraising. The minimum investment was $250,000, but average check size was closer to $1 million, the person said.

The new fund shows that 18 months after Republicans pushed through a tax overhaul with generous incentives to invest in low-income communities, money managers are indeed having some success enticing large numbers of clients to pool cash for qualifying projects.

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Can Depreciation Explain the Magnitude of Trump’s Reported Losses?

Tax experts say that while it’s technically possible, it’s probably not the full story.

Last week the New York Times made waves reporting, after combing through a decade’s worth of tax transcripts that it obtained, that Donald Trump reported $1.17 billion in losses in the years 1985 to 1994.

“In fact, year after year, Mr. Trump appears to have lost more money than nearly any other individual American taxpayer,” The Times found when it compared his results with detailed information the I.R.S. compiles on an annual sampling of high-income earners. His core business losses in 1990 and 1991 — more than $250 million each year — were more than double those of the nearest taxpayers in the I.R.S. information for those years, according to the newspaper.

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Is Cost Segregation Analysis Worth It?

It has long been a question that has puzzled many commercial property owners. Many accountants suggest it, but it’s worth is still rarely clear.

Many owners barely even understand how it operates and is thus unable to determine its worth. As that’s the case, we’ll thoroughly explain what it is and what’s it for, but more importantly, whether or not it is worth it in the overall picture.

What Is Cost Segregation?

First of all, cost segregation is used by commercial real estate owners to reallocate property into personal property, to achieve accelerated depreciation methods and a shorter depreciable tax life.

It is a practice that involves determining the exact assets an owner has and their costs, then classifying them for federal taxes.

By using cost segregation analysis, you get the chance to determine which of your building’s costs that were classified with a 39 years depreciable life could now count as personal property or land improvement, subject to a 5, 7, 15, or 27.5 (for residential and multi-family buildings) years depreciation rate.

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Is the New Tax Law a Boon for Residential Rentals?

The federal government has long encouraged owning a home over renting. Housing subsidies in the tax code effectively lower the after-tax cost of homeownership, which has helped taxpayers move out of residential rentals and into their own homes. The Jeffersons might not have credited tax policy for it in their 1970’s sitcom, but it has assisted taxpayers in “moving up” to bigger and better homes. The Tax Cuts and Jobs Act of 2017 (TCJA) makes sweeping changes to the tax code for individual taxpayers that directly impact their ability to transition from renting to owning their home.

About 34 million households, or 44 percent of U.S. homes, carry a mortgage with annual interest charges that exceeded the prior standard deduction. With the new standard deduction, that group shrinks to around 14 million, or 15 percent of U.S. households, according to the National Association of Realtors (NAR).

And while the TCJA nearly doubles the standard deduction, it caps the deduction for state and local taxes — including income, sales, and property taxes — at $10,000 for both single and married taxpayers. This one-two punch could significantly impair some taxpayers’ appetite for homeownership.

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Tax Reform Promises Mixed Impact on Housing Sector

The Tax Cuts and Jobs Act is the most monumental tax change in 30 years. What does it mean for multifamily?

The Tax Cuts and Jobs Act (TCJA) was signed into law on Dec. 22, 2017. This sweeping tax reform is the most monumental tax change in 30 years and will have an impact on the single-family and multifamily housing markets.

The TCJA widens the individual tax brackets while lowering the top tax bracket from 39.6 percent to 37 percent and maintaining the bottom tax rate at 10 percent.

Pre-TCJA, taxpayers could claim a personal exemption of $4,050 for themselves, their spouse and each dependent. The TCJA suspends all personal exemptions. The standard deduction is increased from $12,000 to $24,000 for families, and the child tax credit is increased from $1,000 to $2,000.

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