Updated: Sep 1, 2019
A few highlights of the recent changes to taxation that affect multifamily investors:
Capital Gains Rate - No Change (Currently 20%)
Step-Up in Basis - No Change - Did not modify this rule
Operating Expenses - No Change - still deductible against the income
Pass-Through Tax Entities - Corporate Tax rate reduced to 21% from 35%
Carried Interest - CHANGE - Hold period now 3 years rather than 1 year
The 1031 Exchange - Eliminated exchange for Personal Property - No Change for Real Estate
Depreciation - No change to Straight Line (27.5 years) BUT increased "Bonus" depreciation to 100% from 50%
Other indirect results for Multifamily - CHANGE - Reduced mortgage interest, removed interest deduction on home equity loans
The last three are the most notable that has an affect for all multifamily investors. 1.) 1031 Tax Differed Exchanges for real estate remains unchanged to allow real estate owners to grow at a faster rate or modify their asset portfolios at a lower cost. 2.) Multifamily investors are able to capture now 100% of depreciation in the year the improvements are made to the property. That will allow and encourage re-investment back into your assets. 3.) The cap on mortgage interest disincentivises home ownership. This should bolster the high demand for apartment housing needs across the US.
As always, the best thing for investors to do is to consult with your CPA on how the latest taxation changes will effect your specific situation. The intention of this article is for awareness of the potential benefits or dis-benefits to the latest tax code changes. SVN Alliance nor Jake Ammon are qualified tax professionals.
Jake Ammon is a Vice President with Addison Commercial Real Estate in Jacksonville, FL. He specializes in commercial investment properties. Contact him at email@example.com or call Jake at 1-904-834-9809.