Key tax code fight may be brewing for real estate industry

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The fight to maintain key tax code provisions under a new presidential administration is expected to heat up in 2017, according to a Wall Street Journal article.

A plan floated in June by GOP members of the U.S. House may gain traction, and it could in its unaltered form have huge ramifications for the real estate industry. The so-called blueprint would get rid of state and local property tax deductions and even target the Mortgage Interest Deduction.

The way the tax code changes would be crafted could make it less attractive to itemize on tax returns. The plan would preserve the Mortgage Interest Deduction, but greatly reduce the number of people using it, the article states.

And in Illinois, a state with some of the highest property taxes in the nation, eliminating the state/local property tax deduction would result in a big financial hit for homeowners.

The article notes in particular the threats that could face commercial real estate practitioners because of the way depreciation would be handled.

According to the article:

The House plan would eliminate depreciation for real-estate companies as well as other businesses. Instead, buyers of real estate would be able to treat the entire cost of buying a property—excluding land—as a business expense that could be used to reduce income. If a buyer didn’t have enough income in the year they bought the building, they could be able to carry the expense forward into future years as a net operating loss.

NAR’s lobbyists have been very clear they expect major efforts at tax reform. Any of these policies, if implemented, could have a profound impact on the market and could potentially dampen already depressed homeownership rates.

Moreover, there is still an open question about the fate of the 1031 Like-Kind Exchange, which is an important for encouraging real estate investment and which is widely used.

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About Jon Broadbooks

Jon Broadbooks is Vice President/Communications for Illinois REALTORS®. He serves as editor of online and print content for the association's communications including the Illinois REALTOR® magazine and e-newsletters. He conducts spokesperson training seminars and oversees website development for the Association.

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