The much anticipated Tax Cut and Jobs Act has been signed by the President. While the House and Senate versions of the Act varied widely on many issues, the Conference Report issued last Friday seemed to adopt more of the Senate version that that of the House.
Here is a very top-level summary of elements that impact our clients who own real estate:
Tax Rates: On the corporate side, the maximum tax rate will now be 21%. Individual rates are capped at 37%.
Recovery Periods: The Senate version proposed a 25-year recovery period for both residential rental and commercial property. The agreed to recovery periods remain at 27.5 and 39-year.
Qualified Leasehold, Retail and Restaurant Property: These separate distinctions were eliminated as of December 31, 2017, leaving only Qualified Improvement Property, which now has a 39-year life.
Qualified Real Property: The definition of this property has been expanded for Section 179 purposes to include roofs, HVAC, fire protection and alarm/security systems. It can also be expensed under Section 179 subject to its parameters below.
Section 179: Annual 179 expense threshold is set at $1,000,000 with a $2,500,000 phase out.
Bonus Depreciation: September 27, 2017 becomes significant since it triggers different levels of bonus depreciation based on in-service dates and when qualified property improvements were made. This means that bonus will be with us for various levels through 2026. Unlike past years’ requirements that bonus depreciation be related to original use property, the final version applies to acquired property as well effective September 27, 2017!
From our perspective, the promise that Tax Reform would simplify the Tax Code certainly has not been met. In fact, it has made our role at Bedford a bit more challenging but we look forward to helping our clients maximize their deductions by taking full advantage of the extremely favorable changes to the Tax Code that will impact our clients.
We will prepare an in-depth analysis and will be conducting a brief informational webinar on that subject sometime in the New Year.