Tax Reform Advisory Panel Recommendations - Investment/Commercial Real Estate Provisions
National Association of REALTORS®
Recommendations of the President's Advisory Panel on Tax Reform
Investment/Commercial Real Estate Provisions
| Current Law | Simplified Income Tax | Growth and Investment Tax | ||
| Depreciation – The cost of structures may be recovered using a straight-line method. The cost recovery period for residential property is 27.5 years. Costs for nonresidential property are recovered over 39 years. Temporary rules permit the cost of leasehold improvements to be recovered over 15 years. | Straight-line depreciation is replaced with the declining balance method. Declining balance allowance for residential is 4%; for nonresidential it is 3%. So-called “land improvements” (which would likely include leasehold improvements) would have a 7.5% allowance. | The cost of all investment in real and personal property will be deducted when incurred. Unlimited carryover periods are provided for amounts that cannot be deducted when an asset is placed in service. Adjustments permitted to carryover amounts to preserve time value of money. The expensing provision will apply to the full price of the asset, whether or not it is debt-financed. | ||
Interest Expenses – Interest costs associated with ownership are fully deductible (subject to at-risk limits). | Same as current law. | Because expensing replaces depreciation, no interest expense deductions are permitted. | ||
Property Taxes – Fully deductible | Deduction repealed. | Same as Simplified Income Tax. | ||
Capital Gains -- Gain on the sale of appreciated property is taxed at 15%. Recaptured depreciation is taxed at 25%. | Generally, gains on the sale of appreciated property would be taxed as ordinary income. To make its recommendations on taxation of US corporations symmetrical,The Panel attempts to “integrate” the corporate and individual tax regimes and to assure that all corporate income is taxed only once. This aspect of their recommendations is beyond the scope of this chart. the one exception to ordinary income treatment would be for gain on sale of stock in US companies. Seventy-five percent of those gains would be excluded from tax (effective rate of 8.25% on gains). | Capital gains taxed at 15%. No information provided on recapture. | ||
Like-kind Exchange – Taxation on capital gains on real estate may be deferred so long as the seller satisfies certain criteria. | No information provided. | No information provided. |
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