“The first major tax reform in more than three decades, the act recognizes the important contribution that commercial real estate is making to the economy by supporting pro-growth initiatives and acknowledging the long-term nature of commercial real estate investment,” Thomas J. Bisacquino, president of the industry trade group NAIOP, said in a statement. “This legislation represents an important victory for NAIOP members and the commercial real estate industry.”
The final legislation kept tax-free exchanges of real estate and continues taxation of real estate carried interest as capital gains.
Real estate firms also continue to be able to deduct their business interest expenses.
And the taxes for the so called pass-through businesses — a common real estate vehicle — were reduced.
The popular historic preservation tax credits that have helped revitalize urban areas were reduced, but not eliminated as originally proposed.
Some analysts are predicting a surge in private capital in commercial real estate to take advantage of the new tax benefits.
The commercial property sector was already enjoying one of the best periods in decades before the new tax regulations were made law.
While the residential real estate industry is worried that the tax deduction changes could drive down home values, commercial property owners see a new spurt of investment.
“While tax reform may have a modest impact on real GDP growth, overall, commercial real estate is a winner, though some subsectors fare better than others,” Revathi Greenwood, Cushman & Wakefield Head of Americas Research, said in a report. “Multifamily looks to be a winner — at the expense of single-family residential — especially in states and municipalities with high state and local taxes.
“The retail and industrial sectors should see modest benefits, while the office sector will see minimal impact.”