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March 2017   Volume 43, Number 3      
 

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How Trump’s Tax Plan Will Impact Real Estate

With the new administration underway, Donald Trump is already working on a new tax plan. Analysts at Baker Newman Noyes, a leading national accounting and consulting firm, have reviewed President Donald Trump’s vision for tax reform and predict that the changes to the tax code will have significant impacts on the real estate and construction industries.

While some details of the plan are already available, analysts are still trying to interpret the meaning of other general provisions that remain vague. Here are a few of the provisions that analysts have interpreted thus far and what they mean for individual taxpayers and businesses.

Capital Gains on Property

When Sold: The tax code prior to the new administration provided favorable federal tax rates on long-term capital gains. Depending on the recipient’s “regular” tax bracket, the current capital gains rates are 0, 15 or 20 percent. While tax brackets will change under Trump’s tax plan, the overall structure and impact of capital gains tax won’t change much for taxpayers.

When Donated: Trump’s tax plan would still permit charitable contributions of certain types of property, including appreciated real estate held for more than one year. However, analysts say the current language of the plan provides little insight as to whether these charitable contributions will be subject to itemized deduction caps ($100,000 for single filers and $200,000 for joint filers).

When Held Until Death: Beneficiaries who inherit such property will have the gains taxed when the property is received, if previously untaxed gains exist at the time of death and those gains exceed $5,000,000.

Pass-through Income: Trump proposes a flat income tax rate of 15 percent for businesses, which also applies to flow-through income. However, some analysts believe that businesses will be subject to a second layer of tax applicable to distribution in exchange for the tax rate reduction.

AMT: Trump’s tax plan calls for an immediate end to the Alternative Minimum Tax (AMT).

Carried Interest: Under Trump’s tax plan, favorable interest rates will come to an end. However, how this will occur is still uncertain.

“We are missing enough details that we cannot provide meaningful guidance on how flow-through income will fare generally, so we are even less able to explain how treatment of carried interest will fit into the picture,” says Stanley Rose, CPA, MST. “Trump plans for across the board tax decreases, so it is possible that carried interest will no longer qualify for capital gain rates, but will not be beaten as soundly as it would if top rates remain where they are now.”

This brief analysis of the new administration’s tax changes and the potential impact on the real estate industry are mostly speculative, given that the legislation is still making its way through Congress. Analysts expect more details about the tax changes to become available in the coming months.

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In this issue:

How Trump’s Tax Plan Will Impact Real Estate

Average Real Estate Commissions Decline to Low 5 Percent Range

Consumer Sentiment Declines in January but Remains Near 13-Year High

Foreign Real Estate Investors Still Confident About U.S. Real Estate

Mortgage Applications Decline 12 Percent to End 2016

New Report Names CEO of Zillow as Most Powerful Person in Residential Real Estate

Rising Home Values Haven’t Shaken Consumers’ Memories of the Financial Crisis

U.S. Real Estate Sales Could Be Affected by China’s Capital Controls

Trump Administration Suspends Mortgage Premium Rate Cut

Keep an Eye Out for At-Risk Senior Clients

 


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