Last year, Congress passed and the president signed the Tax Cuts and Jobs Acts that provided seven key benefits for multifamily owners and operators.
By knowing about these seven opportunities now, especially as you start to think about your 2018 taxes and your plans for purchasing or refinancing for 2019, you may find you have more flexibility and/or freedom for additional deals.
Benefits of the Tax Cuts and Jobs Act Of 2017
In no particular order, here are the seven ways multifamily owners and operators may benefit from the Tax Cuts & Jobs Act of 2017:
- You may qualify for 20% deduction in taxable income until 2025. Most multifamily ownership is falls under LLCs, partnerships, or S corporations. The earnings from these flow-through entities are passed on to the partners who pay taxes on their share via their individual tax returns.
- 1031 exchange to defer capital gains tax and recapture depreciation. Multifamily owners can use the 1031 exchange to sell one multifamily property and invest in another to defer the capital gains tax and recapture depreciation.
- Bonus depreciation increases from 50% to 100% on personal property and improvements on the same year as the purchase and work was performed as well as for purchases of new or existing multifamily properties. The depreciation of multifamily properties remains at 27.5 years, but now allows the bonus depreciation from 50% to 100% on personal property (e.g., carpets, flooring, toilets, sinks, and appliances) and improvements (e.g., HVAC, roofs, parking lots, landscaping, and windows) on the same year as the purchase and work was performed as well as for purchases of new or existing multifamily properties.
- 179 deduction changes mean multifamily owners can now deduct personal property in rental units, make additional real-property improvements, and increase the deduction limits from $510,000 in 2017 to $1,000,000 in 2018. With the changes to the 179 deductions, multifamily owners can deduct personal property in rental units, make additional real-property improvements (e.g., roofs, HVAC, security systems, and fire protection and alarm systems), and increase the deduction limits from $510,000 in 2017 to $1,000,000 in 2018.
- Reduce the corporate income tax rates from 35% to 21%. This significant reduction in corporate income tax rates means owners will be able to purchase additional multifamily apartments, invest in capital improvements, and invest and develop affordable properties.
- Increase the Low Income Housing Tax Credits (LIHTC) to 12.5% over the next three years. To try to reduce the limited affordable housing available throughout the country, the increase in the LIHTC will help entice developers.
- Doubles the estate tax exclusion until 2025 for asset transfers to heirs. The estate tax exclusion changes from $5.6 million to $11.2 million for asset transfers to heirs until 2025.