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How Will the New Tax Bill Impact Commercial Real Estate?

The new tax bill, officially known as the Tax Cuts and Jobs Act of 2017, came into effect in January 2018. Even though no one can know exactly how the commercial real estate market will change considering the new tax bill, we can take some guesses.

We do know one thing for sure: The Tax Cuts and Jobs Act of 2017 is going to impact commercial property owners. There’s no way around it. However, it’s probably too soon to make any firm statements about how it’s going to change the business. Here are some of the ways that commercial real estate experts think the tax reform will affect real estate properties, owners, and investors.

How the Tax Bill May Help CRE Investors

It seems that commercial real estate owners, investors, and developers will benefit far more than residential real estate owners. If you’re active in the CRE market, the Tax Cuts and Jobs Act is more likely to help you than hurt you.

  • The new bill allows a full property deduction in the same year in which the property was acquired. Previously, owners could only deduct 50% in the first year.
  • In addition, some CRE investors will gain the opportunity to deduct the cost of properties as expenses, instead of capitalizing the cost of the property, with an increased limit of $1 million.
  • The new tax bill also allows commercial real estate property owners to deduct mortgage interest on their commercial properties in full. Taxation on the owners’ net income is reduced from 35% to 21%.
  • One of the biggest benefits is the change in pass-through taxation. Pass-through entities, such as partnerships and LLCs, will pay a maximum of 37% and will be eligible for a 20% deduction on business income.

Some things won’t change. For example, many property owners were worried about the historic preservation tax credit, but the 20% credit is still in place. The 1031 Exchange is also remaining in place to help investors defer capital gains taxes.

The Market Won’t Change Immediately.

You probably won’t notice any major impacts of the new tax bill right away. However, it appears that commercial real estate investors are on the winning side of this bill, and if you’re willing to wait it out, you can reap the benefits of the long-term trends that are kicked off by this tax reform. With new deductions for pass-through entities and more options for expensing, CRE investors are in a good position to grow and thrive in the coming years.

If you want to get into the commercial real estate market and take advantage of the positive federal tax reform, talk to the specialist at MarketSpace Capital. This tax reform is a valuable opportunity for commercial real estate investors to grow their businesses, and as an active participant on the secondary market, MarketSpace Capital can help provide liquidity.

Contact MarketSpace Capital today by giving us a call or sending an email to info@marketspacecapital.com

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