2A — March 30 - April 12, 2018 — M id A tlantic
Real Estate Journal
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M id A tlantic R eal E state J ournal Publisher, Conference Producer . .............Linda Christman AVP, Conference Producer ...........................Lea Christman Associate Publisher ......................................... Steve Kelley Associate Publisher ........................................... Kim Brunet Associate Publisher ..................................... Miriam Buttrick Senior Editor/Graphic Artist ..........................Karen Vachon Contributing Columnists: Tim Malloy,Barley Snyder; Wally Merkas, WITHUM; Michael Mullin, Integrated Business Systems Postmaster send address change to: Mid Atlantic Real Estate Journal 350 Lincoln St, Suite 1105, Hingham, MA 02043 USPS #22-358 | Vol. 30, Issue 6 Subscription rates: $99 - one year, $198 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Phone: 781-740-2900 | Fax: 781-740-2929 www.marejournal.com Mid Atlantic R eal E state J ournal ~ Published Semi-Monthly Periodicals postage paid at Rockland, Massachusetts and additional mailing offices
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How the Tax Cuts and Jobs Act Will Affect the Real Estate Industry
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Tim Malloy
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C ongress enacted the Tax Cuts and Jobs Act in December to provide the most substantial overhaul of the United States tax code in decades. There has been plenty of publicity surrounding the personal income tax effects stemming from the enactment of this act, however, there are a number of other areas of the tax code which are significantly affected. There are a number of pro- visions in the act that will directly affect the real estate industry: Bonus depreciation. The act will now allow certain taxpay- ers to elect to treat qualifying property as a deductible ex- pense rather than as a capital expenditure. This will allow many business to immediately expense large expenditures made in connection with cer- tain real estate purchases. This particular provision will be phased out by 2023. Real property asset lives. The act now is intended to provide that qualified improvements to real estate will have a use- ful life of 15 years. A technical correction to the law will be
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necessary in order for this piece of the law to actually come into effect. Like-kind exchanges. Gener- ally, tax-free like-kind exchang- es have been eliminated. How- ever, the like-kind exchange of real estate has been preserved. The impact of this is that, upon each purchase of real estate, the buyer will need to consider what the tax effect is for the tangible personal property as- sociated with the purchase. Business income deduction. There is a new deduction for business in the amount of 20 percent of qualifying business income, however this deduction is limited to 50 percent of the W-2 wages paid by the business or the sum of 25 percent of the wages paid plus 2.5 percent of the unadjusted basis of certain property the business uses
to produce qualified business income. Changes for a tax-exempt in- vestors. The unrelated business taxable income rules have been modified significantly in that you can no longer offset the in- come from one unrelated trade or business with the loss from another. It is possible that the IRS will treat each real estate asset as a separate business, thus losses from one property may not be able to be used to offset income on another prop- erty. This can effect nonprofits across the board. Net operating losses. They can no longer be carried back but may only be carried for- ward indefinitely, and a net operating loss arising in a tax year may only reduce 80 percent of taxable income in a continued on page 11A
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