House along with also Senate Republicans, in their divergent bills, both offered steeply reduced rates to corporate giants, partnerships along with also family-owned firms across the board. although when that will came time to eliminate special breaks or impose tighter standards, real estate was generally excused by the room.
Most businesses were hit with completely new limits on deductions for interest payments, although not real estate. Most industries lost the ability to defer taxes on the exchange of similar kinds of property, although not real estate. Domestic manufacturers along with also pharmaceutical companies lost some industry-specific breaks, like the tax credit for so-called orphan drugs, in exchange for lower rates.
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The real estate industry ended up with an even more generous depreciation timetable, allowing owners to shelter more income.
along with also in a break by previous practice, rental along with also mortgage-interest income qualifies for a lower tax rate, the kind of special treatment traditionally reserved for long-term capital gains along with also certain qualified dividends.
“Real estate does great,” said Daniel N. Shaviro, a professor of taxation at completely new York University Law School, who as a congressional staff member helped write the 1986 tax overhaul. “that will’s hard to imagine what they might have asked for that will they don’t have.”
Real estate investment trusts, known as REITs, have extra cause for celebration. They are companies that will make money by owning, financing along with also operating real estate. Both the Trump Organization along with also Kushner Companies, the family real estate firm partly owned by Mr. Kushner, have important deals with such trusts.
A REIT functions like a mutual fund, although instead of assembling a portfolio of stocks, that will allows people to invest in a bundle of real estate assets, both buildings along with also mortgages. More important is actually the way they are taxed. They pay no separate business tax along with also instead are required to pass along virtually all of their taxable income to shareholders, who pay the tax when they file individual returns.
The Republican proposals sharply lower the top tax rate on the income that will REITs along with also additional businesses pass through to their owners along with also shareholders. Currently, those investors must pay taxes on that will income at rates as high as 39.6 percent. Under the Senate provision, that will would likely drop to 29.6 percent. (The House bill drops the rate even lower, to 25 percent.)
that will’s a big savings, along with also a big advantage. Those receiving mortgage-interest income outside a REIT would likely have to pay taxes based on ordinary rates.
The Trump Organization is actually a partner in two of its largest properties with Vornado Realty Trust, a REIT based in completely new York City. In January, the White House appointed Vornado’s founder along with also chairman, Steven Roth, to develop a trillion-dollar infrastructure package as a leader of an advisory council that will has since been abandoned.
Vornado has also been associated with Kushner Companies, helping bail out its stake in 666 Fifth Avenue, the Kushners’ flagship property, when that will was in danger of defaulting on a more than $1 billion loan.
Kushner Companies has teamed up with another completely new York-based REIT, SL Green Realty Corporation, in several deals. They are collaborating on a development in Brooklyn, along with also SL Green lent Mr. Kushner’s firm $85 million in 2016 to refinance its slice of the former headquarters of The completely new York Times in Manhattan.
A Kushner Companies spokeswoman said the firm had not done any lobbying on the tax bill.
Kurt Koegl, a partner at the national accounting firm Marcum, noted that will a lower corporate tax rate would likely enable additional kinds of companies to better compete with REITs.
although REITs are favored in additional ways. Individuals who borrow money to invest in a REIT will be able to deduct the interest they pay on the loan at the top individual rate. When that will comes to paying taxes on the interest income they earn by that will REIT investment, however, the completely new, lower pass-through rate would likely apply.
“that will’s a great deal, along with also that will’s going to create giant completely new tax shelters,” said Steven M. Rosenthal, a tax expert at the nonpartisan Tax Policy Center. The tax code generally tries to prohibit This particular kind of tax rate arbitrage, he added.
The REIT advantage is actually one example of a broader issue: different tax treatment for similar activities.
Writers of the congressional bills promised that will their overhaul would likely simplify the tax code, although the intricacies of the adjustments create countless opportunities for gamesmanship.
“Suddenly, there are a dozen different tax rates that will apply to different businesses, in different industries, along with also to different investments,” said Adam Looney, a senior fellow at the Brookings Institution along with also a former Treasury Department official. that will means opportunities to come out ahead by producing deals between these different groups or structuring businesses to take advantage of various provisions.
that will could lead to a flurry of restructuring along with also asset shifting that will has no purpose additional than lowering the tax rate. One business might borrow money to invest in another, or buy equipment along with also treat that will as an expense along with also then lease that will to another company.
Ideally, the tax code is actually meant to encourage businesses to make sound economic decisions, along with also forgo activities whose sole purpose is actually to avoid taxes. although the proliferation of different business rates rewards loophole hunting along with also earnings shifting.
“The speed with which they’re doing This particular creates a level of ambiguity that will will keep tax lawyers along with also tax professionals busy for 20 years,” said Scott D. Michel, a tax lawyer with Caplin & Drysdale.
For some industries, such accounting acrobatics may not be necessary. A Senate provision that will is actually being marketed as an aid to smaller craft breweries would likely save money even for the largest beer, wine along with also liquor producers, whether they are inside United States or abroad.
Foreign cruise lines that will operate inside United States got a last-minute reprieve by a completely new tax that will was in an earlier variation of the Senate bill.
Whistle-blowers along with also their attorneys are happy about a provision specifying that will they can collect rewards based on criminal fines.
Car dealers escaped the cap on interest deductions that will apply to most additional businesses. Private equity firms were not able to sidestep that will cap, although they held on to most of the carried-interest benefit that will allows private equity managers, hedge fund managers along with also real estate investors to pay a lower rate on much of their income. Firms will have to hold an asset for three years instead of one, although the average hold time is actually already more than 5 years.
The energy industry also did well. Coal along with also natural gas would likely potentially benefit by provisions that will undercut their renewable-energy competitors. In a reversal of more than four decades of national policy, the Senate bill would likely open a pristine 1.5-million-acre expanse of the Arctic National Wildlife Refuge to oil along with also gas exploration.
along with also at the last minute, the Senate bill gave master limited partnerships, which mainly finance pipelines, the same special tax treatment that will REITs have: a lower rate on the income they generate.
House along with also Senate Republicans are still wrangling over the final variation, along with also every comma is actually subject to change. although to some tax experts, an unlevel playing field that will gives certain types of business along with also structures advantages over others is actually a bigger concern than a tax break for real estate or any additional industry.
“that will’s easy to look at the deals that will are explicitly inside bill — like the special treatment of auto-dealer financing or whistle-blowers — along with also call out ‘loophole,'” Mr. Looney of Brookings said. “although the big problems are the things that will aren’t specifically noted inside bill, although will arise because of tax planning.”