How Trump’s plans could affect the real estate industry
Wednesday Mar 08th, 2017Share
Taxation of pass-through entities
Many real estate investors utilize pass-through entities in their formation. As this and other avenues are used, the possibility of an entity-level tax reduction would be beneficial to the asset-management industry both at the fund and investment levels. The proposals include a flat 15 percent entity level tax on reinvested earnings, or 25 percent entity-level tax for active business income. The business cash-flow tax is gaining support in Congress.
Corporate tax rates
The integration of corporate and shareholder taxation (one level of tax compared with the current double taxation rules) has support from both the House and the president. The Trump plan would seek to lower the corporate tax rate to 15 percent and eliminate corporate Alternative Minimum Tax (AMT), while the House plan would lower the rate to 20 percent with elimination of the AMT. Important to note is that these changes would likely establish a one-time tax deemed for repatriation of corporate profits held offshore.
President Donald Trump has been vocal about closing the carried interest “loophole.” This would mean that asset managers would be subject to tax at ordinary rates on their performance and incentive-based returns rather than the current capital gain treatment. On the other hand, the House plan has remained silent on this issue. In light of the other tax changes being proposed, asset managers that receive a carried interest should pay particular attention to these proposals.
Depreciation and interest expense
Investment in infrastructure
Trump has expressed his plan to “put the country to work” by upgrading the nation’s infrastructure. The capital markets have responded positively to this initiative since it’s widely seen as beneficial for both real estate developers and construction companies.
All in all, there are several proposals that would be beneficial for the real estate and construction industries. Unfortunately, these proposals will need to be weighed with other adverse changes that may be used to pay for tax reform. In general, these industries will need to monitor any tax reform proposals over the next year and regularly assess the potential impacts to their businesses.
Dana Holm of Bizjournalz.com