Tax Relief for American Families and Workers Act: A Boost for Real Estate Investors

by | Mar 4, 2024 | Blog

An avatar carrying the word 'TAX' on top while standing on the word "relief help"

On January 19th, a significant development occurred in the realm of taxation with far-reaching implications, especially for commercial real estate (CRE) investors. The House Ways and Means Committee, by an impressive bipartisan margin of 40-3, voted to advance the Tax Relief for American Families and Workers Act to the House floor for further consideration. This proposed legislation, if enacted, will reintroduce 100% bonus depreciation, a provision that is currently undergoing a gradual phase-out until 2027. For CRE investors, this represents a substantial boon.

Let’s delve into the background of this legislation to understand its significance better. Back in 2017, the Tax Cuts and Jobs Act brought about a provision allowing companies and investors to write off 100% of the value of assets with a lifespan of less than 20 years. This provision was aimed at stimulating investment and economic growth. However, it was structured to decrease

gradually, with the write-off percentage scheduled to reduce to 80% by 2023 and eventually phase out by 2027.

This deduction had a profound impact on businesses and real estate investors alike. In the realm of multi-family acquisitions, it facilitated cost segregation studies, enabling investors to identify assets within properties with a lifespan of less than 20 years for immediate write-off. Consequently, investors enjoyed significant first-year losses on their K1s, effectively shielding ordinary income. Moreover, properties undergoing renovation continued to benefit from this tax deduction, further enhancing the value proposition for investors.

The prospect of reinstating 100% bonus depreciation is not only significant but also promising. Despite being a legislative proposal, its chances of passage appear favorable owing to the robust cooperation witnessed within the committee. Moreover, the bill’s funding mechanism, which involves reducing controversial Employee Retention Tax Credit payouts related to Covid-era hiring three years ago, adds to its appeal. Furthermore, the bill encompasses provisions such as an increase in the child tax credit, which stands to benefit tenants with families, thereby garnering broader support.

For multi-family investors, this development heralds exceptionally positive news. The reintroduction of 100% bonus depreciation is poised to attract fresh capital into the multi-family sector, potentially driving prices higher. The anticipation is palpable, with hopes pinned on the bill’s passage.

As we await further developments, the question lingers: will the legislation be retroactive to 2023, or will the current 80% write-off limit prevail? Regardless, the implications are clear: the Tax Relief for American Families and Workers Act holds immense potential to reshape the landscape for CRE investors, offering renewed opportunities for growth and investment in the multi-family sector. As stakeholders eagerly await the outcome, optimism prevails, with fingers crossed for a favorable resolution.

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