Real Estate Tax Law Changes
The new tax law introduced significant changes to commercial and residential real estate tax law as well as tax considerations for real estate agents and brokers. The real estate tax section of the new law is extensive. We have highlighted only some of the major considerations, below.
Commercial Real Estate
- Preservation of 1031 tax-deferral exchanges for real estate (all other asset exchanges are now eliminated).
- Retention of the low income housing tax credit.
- Increase in the Section 179 expensing threshold from $500,000 to $1 million.
- New rules on pass-through entity taxation will provide a significant new deduction for taxable income earned by owners of qualifying real estate companies.
Residential Real Estate
- $10,000 Cap on the deductibility of real estate tax and state and local income taxes – this is accompanied by an increase in the standard deduction, so the impact will vary greatly based on the individual.
- Mortgage interest is deductible on new loans up to $750,000 (purchases or refinance) for first and second homes – limit reduced from $1 million.
- The exclusion of capital gains taxes on sales of principal residences remains unchanged.
Real Estate Agents and Brokers in Pennsylvania
- Real estate agents and brokers, with taxable income below $157,500 (or $315,000 for a married couple) may generally begin claiming a 20% deduction under the new pass-through personal service income exception.
- Although Pennsylvania real estate taxes are not low (12th highest in the country), they are substantially lower than those in New Jersey (highest in the country) and the New York City metro area. Therefore, considering the combined $10,000 cap on real estate and income taxes and the cap on mortgage interest deductibility for high priced homes, there is a real chance of even greater migration from New Jersey and New York to eastern Pennsylvania. That, of course, could be a huge bonus for Pennsylvania real estate professionals and homeowners.
Over the past month, we have have highlighted the notable changes provided by the Tax Cuts and Jobs Act, introduced in late 2017. From business considerations, to estate planning and alimony, the new tax law impacts many facets of our lives. It is important for individuals and businesses in all industries to consult with financial professionals and their attorneys on the impact of this new law and how to avoid potential tax burdens in the future.
Attorney Jack Gross‘s real estate practice includes counseling commercial developers, land owners, businesses, corporations, and individuals in real estate transactions and zoning matters.