Commercial Investment Real Estate March/April 2018 | Page 22

CCIM
EDUCATION
Fast and Furious
How the 2017 Tax Act may affect the commercial real estate industry.
he dizzying pace of writing, discussing, reviewing, and
passing the U.S. Tax Cuts and Jobs Act of 2017 has
made it tougher to determine how its changes will affect
the commercial real estate industry. Many of the 2017
tax act’s changes already started in 2018, but many issues will
require further refinement to understand their idiosyncrasies.
Many of the changes will sunset after 2025.
The 2017 tax act provisions apply to both individuals and
organizations.
Under the new rules for individuals, those filing a single return
making under $9,525, the rate on the taxable income is 10 percent.
On the other hand, for those individuals with taxable income
of more than $500,000, the reduced rate is set at 37 percent —
slightly less than before.
For those filing joint returns, the 10 percent rate applies for a
taxable income amount of under $19,050. The highest rate of 37
percent tax applies to those with taxable income of more than
$600,000.
T
Beneficial Corporate Tax Rates
To address the issue of competitive tax rates for corporations, the
2017 tax act reduces the highest corporate rate from 35 percent
to 21 percent, starting in 2018.
The expensing of capital expenditures and use of cost recovery
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March | April 2018
has allowed a business taxpayer with qualified property to deduct
the cost of most personal, nonresidential property, which was
employed in business. Immediately before the 2017 tax act, this
rule allowed taxpayers to deduct up to $500,000 of acquired,
qualified, personal property rather than applying cost recovery
to the property during a given number of years.
The 2017 tax act gives taxpayers even more immediate deduc-
tions. Under the provisions of the 2017 tax act, taxpayers may
deduct up to $1 million for qualified property. The benefit of such
current write-off is subject to limits, if the taxpayer acquired too
much of the qualifying property. In such instance, the current
deduction could be lost.
However, the phasing out of such property deductions was
increased to $2.5 million under the 2017 tax act. If the $2.5 mil-
lion amount is not exceeded, there is no reduction in the use of
the current qualifying property write-off. For example, a taxpayer
might place in service $800,000 and deduct the whole amount
under the 2017 tax act.
Under Internal Revenue Code Section 179, most of the
property is nonresidential, business (personal) property, and
not real estate. However, exceptions exist where qualified retail,
residential, and leasehold improvements may fall within IRC Sec-
tion 179. Further, fire protection, air conditioning, and roof work
also may fall within IRC Section 179.
COMMERCIAL INVESTMENT REAL ESTATE
by Mark Lee Levine, CCIM, JD, LLM (Tax), and Libbi Levine Segev, JD, MS-RECEM, LLM (Tax)