Tax Cuts & Jobs Act

Building Owners, Increase Your Cash Flow with TCJA

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What is the Tax Cuts & Jobs Act?

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 (typically 5- or 7-year assets identified in a Cost Segregation Study) 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.

Reduced Tax Rates

  • Corporate (C-Corp) tax rates reduced to 21% for tax years beginning after 2017.
  • Individual tax rates reduced slightly, with the highest federal rates decreasing from 39.6% to 37% through 2025.

20% Pass-Through Income Deduction

  • Allows individuals, trusts, and estates to deduct up to 20% of their qualified business income through 2025.

Net Operating Losses

  • Can no longer be carried after back 12/31/2017.
  • Can be carried forward indefinitely, but carryforward is limited to 80% of income
    • CARES Act temporarily allows net operating loss carryback for five years for losses that occur in 2018, 2019, or 2020.
    • CARES Act allows net operating loss carryforward to offset 100% of income through 2020.

Contact CSSI® to Take Advantage of the TCJA Benefits

CSSI® addresses provisions of all relevant tax law with every study performed. Our initial analysis is always prepared at no cost. Contact us today to learn more.