An update on US tax reform and potential implications for the real estate industry
January 2017 edition
Professionals in the real estate industry should be mindful of the various provisions in proposed tax plans and keep a close tab on developments as the legislative process moves forward.
On 3 January 2017, the 115th Congress was sworn in, which capped a surprising sweep by Republicans of the House, Senate and White House. Before, during and following the campaigns, President Trump, House Speaker Ryan and Senate Majority Leader McConnell each signaled that comprehensive tax reform was a high priority.
At this point, the overall process for tax reform in 2017 has not taken shape nor has any detailed legislative proposal been made public. However, there are three different proposals.
- The House Republican Blueprint for tax reform
- The Camp Plan: a precursor to the Blueprint
- The Trump tax plan: an evolving perspective
Considerations for the real estate sector
There are a number of specific questions and issues relating to tax reform proposals that may be relevant to the real estate industry. A small sample of specific questions follows:
- Would tax reform change the way carried interest is taxed and, if so, in what way? Both the Trump and Camp Plans proposed to tax all or a portion of the income attributable to a carried interest as ordinary income. The Camp Plan, however, exempted real estate partnerships from such treatment.
- Would capital gain recognized from the sale of non-dealer real estate, as opposed to capital gain from the sale of stock, be eligible for the 50% income exclusion for interest, dividend and capital gains?
- How would the revisions to the estate tax proposed by Trump affect how long people hold interests in real estate partnerships, including REIT operating partnerships?