TAX CUTS & JOBS ACT

Tax Cuts &

Jobs Act

Tax Cuts and Jobs Act of 2017

By educating yourself in the ever-changing area of real estate tax law, you and your tax professional will make the most of your tax planning time together. Often, the result will be a significant reduction in your annual tax payment. A recent change in tax law was the 2017 Tax Cuts & Jobs Act (TCJA), which introduced considerable advantages for building owners.

100% Bonus Depreciation

Increased bonus depreciation for MACRS property with a recovery period of 20 years or less from 50% to 100% acquired after 9/27/2017 and before 2023. The bonus depreciation rate is then reduced by 20% per year, beginning in 2023.

Bonus depreciation now applicable to new or used property.

This means that nearly every component identified as accelerated in a cost segregation study for a building acquired after 9/27/2017 can be fully depreciated in the first year of service.

Increased Section 179 Expensing

Limitation increased from $500,000 to $1,000,000, phase-out limitation increased to $2,500,000.

Now includes the following items: roof, HVAC, fire protection & alarm systems, and security systems included in improvements made to non-residential commercial buildings.

Still includes personal property – expanded to include tangible personal property in residential rentals.

Qualified Improvement Property

Qualified Leasehold Improvements, Qualified Retail Improvements, and Qualified Restaurant Property are all replaced with Qualified Improvement Property (QIP).

Structural items like interior supporting framing, escalators, and elevators are not included in QIP. The improvements must have begun at least one day after the building was placed in service for its intended use.

Intended to be classified as 15-year property and, therefore, eligible for bonus depreciation. This was not done due to a technical language error. The 2020 CARES Act has corrected this.

1031 Exchanges - Only Include Real Property

Personal property (as defined by state definition) can no longer be included in a 1031 Exchange.

A Cost Segregation Study can be applied to the newly acquired building’s depreciable basis to help offset the effects of recapture on the sale of personal property.

20% Pass-Through Income Deduction

Personal property (as defined by state definition) can no longer be included in a 1031 Exchange.

A Cost Segregation Study can be applied to the newly acquired building’s depreciable basis to help offset the effects of recapture on the sale of personal property.