TRUMP’s proposed tax changes are stalled... - ELB Consulting

How will they affect commercial real estate owners & investors

The overall U.S. Federal tax code may be the most complicated document on the planet, and it dwarfs the set of encyclopedia Britannica we had on our shelf back in the 70’s and 80’s. For the 2014 tax year, the code was 74,608 pages. In 2010, the passage of the Affordable Care Act (Obamacare) grew the tax code by 3,000 pages alone. Back in 1984, the tax-code was 26,300 pages long (that’s a 50,000-page growth in 30 years). Does it really need to be so large and complicated?

The Federal tax-code is a complicated tangle of special interests, deductions, benefits and loopholes that cross every industry and demographic. It keeps growing every year with new rules and regulations.

Certainly, simplification to a postcard like 1040 form, or a flat tax sounds great. Simple, clean, and easy! But is that even realistic given the multitude of special interest lobbyist groups raising “THEIR” banner and the importance of incentives for the industry they are paid handsomely to represent.

Add to that the partisan, polarized and caustic environment in the legislative branch and Washington, D.C. right now – and it seems that getting any movement toward any real change, or even tax change is unlikely. A current Associated Press (AP) report cites ‘Trump is scrapping his tax reform’ plan (for now), as the sweeping changes he is seeking will not be finished by the August deadline. Many media outlets are as partisan and polarized as the rest of the nation, so it is hard to know who and what to believe.

If major, sweeping change is not coming for 2017, certainly components of the tax code can be modified or adjusted to accomplish some of the president’s goals. After all, it took the Reagan administration two years, back in 1986, to establish the last major tax-code overhaul.

So, what does this all mean for the Commercial Real Estate (CRE) industry?

Our business focuses on delivering engineered CRE and business tax benefits to our clients. Like many other businesses and industries, we have a vested interest in the tax reform outcome. Our tax incentive niche encompasses accelerated depreciation, green energy tax incentives, research and development (R&D) tax credits, and numerous other asset and business benefits supported in the tax code. As such, we monitor closely what’s happening and speak to many of our CPA friends.

There are dramatic proposals and talk of full expensing of a property in year one and elimination of the 1031 tax exchange. Our “anonymous sources” are confident these will not happen and while there will be impacts to the CRE industry both good and bad, the core guidelines around incentivizing businesses to innovate, go green, and mitigate taxes through tax guidelines will mostly stay intact.

And while the “sea of change” is ever shifting with various currents, undertows and calm waters, we can and will safely navigate through it.

While we do anticipate changes and simplification in the foreseeable future, dramatic changes that adversely impact the CRE industry is highly unlikely. All engines ahead!