The Tax Cuts and Jobs Act passed in December of last year is bound to have significant implications in several different markets. The Florida real estate market is already experiencing the tax overhaul’s impact. In particular, the commercial real estate market stands to benefit greatly from the new tax law-especially for high-net-worth investors.
A new deduction for pass-through entities
The portion of the overhaul that is perhaps most beneficial for high-net-worth commercial investors is the new deduction for pass-through entities. Under the new law, qualified-net income that results from pass-through entities is subject to a 20 percent deduction. Because this provision encourages investors to shift capital from equities to pass-through businesses, the demand for commercial properties is likely to increase.
The investors who can claim this deduction include people who have invested in public or private real estate funds as well as Floridians who own real estate through an LLC or a partnership. According to one estimate, investors may be able to lower the tax rate on their real estate investments to 29.6 percent-a full 10 points lower than last year.
Using the tax code to your advantage
High-net-worth individuals who are interested in investing in Florida’s commercial real estate market may be wondering how to take advantage of the tax overhaul. These are some of the best ways for potential investors to capitalize on the new laws:
· Wherever you can, partake in real estate transactions that are eligible for as much of the pass-through deduction as possible.
· You may be able to incorporate 2.5 percent of the property’s original purchase price into the deduction for pass-through income.
· It is now possible to write off the cost of improvements on commercial real estate as direct expenses under a newly-expanded Section 179.
· Contact a Florida-based attorney who can provide guidance and advice as you add to your real estate portfolio.
