Senate Finance Committee Proposes Tax Reforms Affecting Real Estate Investments

The Senate Finance Committee recently proposed some startling tax reform changes directly affecting real estate and real estate transactions nationwide.  If their proposal is enacted, here are some of the changes investment properties would face:

1)   Section 1031, which allows deferral of taxes owed on like-kind exchanges, would be repealed.  For general information on what a 1031 Exchange is, click here.

2)   The tax incentives for energy-efficient improvements to large apartment buildings will be repealed.

3)   All real property would be depreciated over 43 years on a straight-line basis.  The current depreciation periods (39 years for commercial non-residential property, 27.5 years for residential property, and 15 years for leasehold improvements) would no longer exist.

4)  Recaptured depreciation would be taxed as ordinary income, instead of at 25% as it is currently taxed.

All of this would make real estate investments more expensive for the owner.  Let's see what happens. . .