Property depreciation in the proposed Trump tax reform

7 Replies

Can anyone shed light on how the proposed Trump tax reform would affect property depreciation.  Could this tax reform  retroactively take away the tax benefits for 2017?

What are you hearing about depreciation?  I don't see anything in the bill for depreciation on investment real estate.  Here's the bill:  Tax Cuts and Jobs Act.

Originally posted by @Jon Holdman :

What are you hearing about depreciation?  I don't see anything in the bill for depreciation on investment real estate.  Here's the bill:  Tax Cuts and Jobs Act.

 I have heard a lot of discussion about it, but nothing in black an white. I have seen many articles written on different platform (e.g. https://www.realized1031.com/blog/digging-deep-int...). I can't say I am relying on communicated content, but I still haven't heard anything authoritative.

Thank you Jon for attaching the link to the 'Tax Cuts and Jobs Act', I did notice in the table of contents 'Sec.3201: Expansion of section 179 expensing.' Which clearly is in reference to property depreciation; However, I haven't yet had the time to read the Act. 

I would appreciate if any other tax experts may be able to shed light on the confusion.

That section deals with being able to expense big purchases for a business.  Normally big capital items (e.g., some big piece of equipment) have to be depreciated over multiple years.  Section 179 allows up to $500K to be expensed in the year you incur the expense rather then depreciating it over several years.   There's a limit of $2 million, though, and if you go over that, the $500K amount gets reduced.  The tax bill changes those numbers to $5 million and $20 million for tax years 2018 to 2023.  That's a huge benefit for companies that need to acquire a bunch of equipment or software.  Doesn't apply to most real estate, only leasehold improvements, retail improvements, or restaurants.

Originally posted by @Jon Holdman :

That section deals with being able to expense big purchases for a business.  Normally big capital items (e.g., some big piece of equipment) have to be depreciated over multiple years.  Section 179 allows up to $500K to be expensed in the year you incur the expense rather then depreciating it over several years.   There's a limit of $2 million, though, and if you go over that, the $500K amount gets reduced.  The tax bill changes those numbers to $5 million and $20 million for tax years 2018 to 2023.  That's a huge benefit for companies that need to acquire a bunch of equipment or software.  Doesn't apply to most real estate, only leasehold improvements, retail improvements, or restaurants.

 Thanks for the clarity Jon. So this actually does have big implications for investors or companies who are accelerating depreciation on personal property ('5-year property' or sec. 179 property) through cost segregation. Would this apply to a purchase of a large commercial property? My impression was it does.

Originally posted by @Yonah Weiss :
Originally posted by @Jon Holdman:

That section deals with being able to expense big purchases for a business.  Normally big capital items (e.g., some big piece of equipment) have to be depreciated over multiple years.  Section 179 allows up to $500K to be expensed in the year you incur the expense rather then depreciating it over several years.   There's a limit of $2 million, though, and if you go over that, the $500K amount gets reduced.  The tax bill changes those numbers to $5 million and $20 million for tax years 2018 to 2023.  That's a huge benefit for companies that need to acquire a bunch of equipment or software.  Doesn't apply to most real estate, only leasehold improvements, retail improvements, or restaurants.

 Thanks for the clarity Jon. So this actually does have big implications for investors or companies who are accelerating depreciation on personal property ('5-year property' or sec. 179 property) through cost segregation. Would this apply to a purchase of a large commercial property? My impression was it does.

In it's current form it certainly could. From what I've seen so far they are talking about allowing bonus depreciation on assets with a life shorter than 20 years and making it available for used assets as well.

Thanks Chris. That change in bonus depreciation could be very significant.

@Yonah Weiss I'm certainly not a tax expert or a legislator so take my opinions for what you paid for them.  As far as I can tell, though, the whole section 179 "expensing what would normally be capital" section doesn't apply to a real estate purchase except for those three exceptions.  And two of those aren't even real estate, just improvements.  I suspect the idea is that those two types of improvements (leasehold and retail) and restaurants are very temporary.  You lease a property and build it out to suit your needs and that buildout is very specific to you.  Similarly for a restaurant.  If you sell it, its unlikely the buyer has any use for the buildout you did.  Except for old Pizza Huts.  You see those all over the place converted into all sorts of stuff.

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