Real-Estate Industry Braces for Tax Upheaval

Among other things, the GOP blueprint calls for the elimination of the deduction for state and local property tax. Industry executives also worry the plan could severely cripple the mortgage interest deduction—long considered a sacred cow of U.S. tax policy.

Another sea change in commercial real estate would be in the way the House blueprint would affect depreciation. Tax law currently allows buyers of rental apartment buildings to depreciate the cost over 27.5 years and other commercial real estate over 39 years.

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.

The 3 main tax benefits of real estate:

  1. Property tax deduction
  2. Mortgage interests deduction
  3. Depreciation

If Trump severely cuts these we may see a crash. Investor landlords will be incentivized to sell as carrying costs will skyrocket. Ironic to have a real estate guy in the White House, isn’t it?

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This is gonna be bad for California all around, since we have high state income tax, and expensive mortgages. Previously, just my state income tax obliterated my standard deduction. Mortgage interest deduction was a no brainer. If these proposals go through… home ownership looks much less attractive.

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Yes, it sounds scary that depreciation on rentals shall be removed. But if I can write off the entire purchase as a business expense, then it’s even better. Right now, I can only depreciate the building (e.g. 50% of the purchase price). If I read it right, they propose that I can depreciate 100%. Sounds good to me.

I would agree that removing interest and tax deduction for owner occupants would have a bad impact on such properties.

Solution could be to rent your neighbor’s house and your neighbor rents your house, if you understand what I mean…


It’s still only the building portion. So not 100%. Maybe their plan is to let you deduct all in one go? But extremely few have that kind of tax bill to deduct a whole house against with. If you can carry it forward it’s just a more flexible form of depreciation then.

I like the current scheme just fine. No boat rocking needed. :slight_smile:

It’s a business friendly proposal. Will individual landlord be treated the same as corporations? I hope that landlord is not required to incorporate to enjoy the 100% building cost as expenses immediately.

Property tax and mortgage interest will also be treated as landlord expense naturally. But all these expenses are not deductions, it’s just business expenses. It would be ridiculous to disallow expense of property tax, mortgage interest and building cost against rental income.

Only the owner occupied properties will be negatively impacted. It makes sense though. Owner occupied homes are consumption, rental housing is business investment. We should discourage consumption and encourage investment.

It would be a wash of you and your neighbors rent houses to each other, since today’s deductions will be used as expense to offset rental income. Actually it would most likely hurt you since some day your net rental income will be positive.

It actually makes sense to disallow using property tax and mortgage interest to offset personal income. However, it would be unpopular to take away things from people. Interest deduction can be left alone, and let inflation to eat it away. Property tax is better to be kept as is, instead, they should remove state income tax deduction since it would only hurt high income people and high cost states, middle income and low/zero state income states will be protected. This would encourage people to try to remove state income tax. Wow!

That depends on how much rent you charge your neighbor.

And remember that when you repair the furnace in your rental, it’s a deductible expense. In your own home, not.

For owner occupants, they do not pay any tax on their equivalent rent their house would generate if it were a rental. Therefore, it’s natural that owner occupant should not get any deductions for appliance repairs. Same logic applies to mortgage interest and property tax.

Logically it makes perfect sense to get rid of deductions for owner occupants. But it would be shock to the RE market. But renters might be happy to support this proposal. Since more homeowners are republicans and more renters are democrats, it’s surprising that this proposal comes from Republicans.

I remember that Obama wanted to eliminate mortgage deductions but gave up, probably due to lobby from NAR. Did NAR forgot to donate to Republican candidates?

Logical thing to do. Tax collected by state and local for their uses yet deduct from Federal tax doesn’t make sense.

:grin: Proposal makes sense.

So people want tax hike? On home owners?

Interesting… I thought people vote Trump so they don’t have to pay any. Maybe owning a home is too easy. Like Trump said you need to be smart like him to skip taxes. Owning a house is too easy. :slight_smile:

The Japanese discourage consumption and their economy is in the toilet…Buy baby buy…American consumption is what makes us great…cheap oil, cheap credit and free enterprise, drives the US economy

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Have to disallow both property and income taxes. If disallow state income tax only, all states would stop collecting state income tax and increase property tax :slight_smile: .

Those affect owner-occupied only. Why would carrying costs of landlords increase?

I deduct all 3 for my rentals. You don’t?

If the R’s cut deductions for homeowners, of course they will also cut them for landlords. Otherwise the optics would be super bad. We already have a billionaire, allegedly, in the WH, and the cabinet has the most combined net worth in American history. So they are now keeping the tax deductions for the wealthy, i.e. landlords, and hiking taxes for everybody else?

Also, most landlords are what I call accidental landlords. They keep their old houses after they moved up. So their rental is of lower value than their primary. Getting rid of deductions for their primaries will still make these people mad.

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Was basing my comments on what others said. Having read the article, the proposal to disallow mortgage interest and land depreciation applies to businesses too. This affects landlords in bay area a lot since land cost comprises the bulk of the house price, and if Red fin is correct that most SV buyers borrow very high mortgage, then their carrying cost would be very high… given such uncertainty, definitely not a good time to buy.

Well, rent has to increase dramatically to compensate for the lack of mortgage interest deduction and land cost depreciation… can renters take it?

These guys won’t complain much since their property tax is fairly low because of prop 13, and most likely don’t have a mortgage. So they only need to increase rent slightly to compensate. The ones most affected are those who purchased a house recently in high cost area such as SV, and with a high mortgage. Wow! Crash coming… exactly why I don’t like to swim naked… don’t know when the tide subsides.

Let’s see what “Take Trump seriously but not literally” means. Maybe Trump seriously wants to screw you, but he just literally said he loves you?

This tax proposal is so extreme I don’t think it has a good chance of passing. Our old pal the National Association of Realtors, which I still pay dues to, is a powerful lobbying machine. Let’s see if they use my money wisely…

The depreciation issue is better for businesses since you can bring forward the deduction. From what I understand, there is no depreciation for land all the while.

The disallow of debt interest deduction is too weird… so businesses can only raise equity through share sales?