Given that President Donald Trump made his fortune in real estate, it shouldn't come as a surprise that multiple provisions of the 2018 tax reforms stand to benefit commercial real estate directly, says Ian Prescott, a partner at the Salt Lake City-based CPA firm WSRP. And though the final details have yet to be worked out, those looking to buy, sell, or rent commercial space will likely benefit from broader tax cuts and deductions, as well.
Between the reforms and the current economic outlook, Blake Rigby, managing director at Colliers International, says the market seems to indicate that now is a good time to invest in real estate, regardless of whether buyers are considering short or long-term goals. "Were it me," he says, "I would be more prone to do things now than to hold off."
NEW REFORMS EXPAND OPPORTUNITIES
Thanks to the bullish real estate market, Rigby doesn't expect that the new reforms will have a dramatic impact on dictating growth. But they could sway developers when it comes to deciding where they invest.
One of the most significant reforms to come out of 2018 is the creation of nation-wide "opportunity zones." This provision allows state governors to use federal criteria to select census tracts in need of economic development and gift them special tax deductions. Developers won't be able to invest in these areas completely tax-free--but they could take advantage of significant savings.
Traditionally, when a property's owners choose to sell, they have 45 days to reinvest the proceeds or risk paying sizable taxes on any appreciated value of the building. And even if they choose to defer the taxes of the sale now, they'll eventually have to pay taxes on the difference between the final sale price, and the value of the original property when they choose to exit real estate.
But if the property's owners reinvest the proceeds of their sale into an opportunity zone, which are now available in all 50 states, the tax rate paid on the proceeds of future sales decreases. To make the deal even better, properties within opportunity zones are allowed to appreciate tax-free. These benefits may spur economic development in previously disadvantaged areas by attracting new development, says Mr. Rigby.
In hot markets with low vacancy rates, the existence of a nearby opportunity zone may also solve a key problem for investors, says Jared Booth, a senior vice president at Colliers International and federal commercial policy chair for the...