Commercial Investment Real Estate March/April 2019 | Page 21

depreciation will be phased out by 20 percent per year begin- ning in 2023, until it is gone in 2027. Qualifying property generally includes new and used assets with a depreciable life of 20 years or less, which applies to the majority of a building’s interior assets. Section 179, which allows the immediate expensing of assets that otherwise would need to be capitalized and depreciated, provides additional opportunities for commercial property own- ers. The Tax Cuts and Jobs Act expands the annual Section 179 limit from $500,000 to $1 million, with a phaseout beginning at $2.5 million of qualifying assets placed in service. Section 179 is available for qualified improvement of property, which now includes roofs; heating, ventilating, and air conditioning; fire protection and alarm systems; and security systems. Business Interest Limitation Excess Business Losses Plan Ahead Taxpayers must balance depreciation benefits with the new excess business loss limitation rule, which annually limits the amount of an individual’s business losses to $500,000 for joint returns or $250,000 for single returns. Any excess is carried forward as a net operating loss for up to 20 years. The passive loss rules still apply; in the real estate sector, this provision mainly affects taxpayers qualifying as real estate professionals. The Tax Cuts and Jobs Act is anything but tax simplification, particularly because not all states conform to federal tax rules. Working with a tax professional can help real estate owners capi- talize on opportunities for 2019 and beyond. The Tax Cuts and Jobs Act also limits the net interest expense deduction to a business’s interest income plus 30 percent of its adjusted taxable income for an entity (including related entities) with average annual gross receipts exceeding $25 million. This new limitation becomes even more onerous after 2021, when the adjusted taxable income number will lose the depreciation and amortization add back. Excess interest expense carries forward indefinitely. Most real estate entities can elect out of this business interest limitation; however, the cost for making this election — inability to claim 100 percent bonus depreciation on many assets — is potentially quite costly. Determining whether the irrevocable election is beneficial requires detailed modeling and projections. Paul Rosenkranz is lead tax managing director at CBIZ MHM in Los Angeles. Contact him at [email protected]. Fund the Future The CCIM Foundation’s mission is to advance and foster commercial real estate education through scholarships, programs, and research initiatives. To learn more about the CCIM Foundation and donate to our mission, please visit www.ccimef.org The CCIM Foundation is a 501(c)(3) nonprofi t organization. Thank you to our 2019 corporate sponsors CIREMAGAZINE.COM March | April 2019 19