Tax Reform and the RE Industry – April 2017

The 2016 House Republican tax reform plan calls for eliminating the tax deduction for interest payments as one of the ways to help offset lower tax rates – a provision estimated to be worth $1.5 trillion, according to The New York Times (citing Tax Foundation). Real estate investors, who often use leverage to enhance returns, are one of the main beneficiaries of this deduction.

Another key provision of the GOP plan is immediate deductibility: The expensing of capital expenditures as opposed to the current practice of depreciating assets over time. According to the NYT report, the Tax Foundation has estimated that immediate expensing would cost $2.2 trillion in lost revenue in the first ten years with the loss tapering off as depreciation wanes. Getting rid of the tax deduction for interest payments is expected to offset some of the 10-year loss related to immediate deductibility while retaining the tax deduction and enacting immediate deductibility would lead to a large revenue shortfall.

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