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The 2017 "Tax Cuts and Jobs Act" is the most significant change to U.S. tax law in 30 years. It lowered the maximum federal corporate tax rate from 35 percent to 21 percent, as well as lowering rates for many individuals, though nearly all individual reductions sunset at the end of 2025.
Below are highlights of particular interest to commercial real estate owners and developers. In general, while the tax code changes will reduce taxes for many commercial real estate owners and developers, the long-term impact of these changes is difficult to predict. Fundamentals should remain the market driver for commercial real estate.
Other reforms will also benefit investors, such as the expansion of the types of nonstructural improvements to the interior of non-residential buildings subject to bonus depreciation. Improvements now eligible for bonus depreciation include used property, as well as improvements to roofing, HVAC systems, and fire protection, alarm, and security systems. Though annual state and local tax (SALT) deductions (other than property taxes incurred in a business or other income producing activity) are now capped at $10,000 for individuals, which will affect investors’ personal pass-through income, the changes described above and others may make doing business in a high-tax state like California somewhat more palatable.
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