Speculating on Trump's Impact on Commercial Real Estate Tax Policy Post-2024 Election

With Donald Trump securing victory in the 2024 election, the commercial real estate sector is buzzing with speculation about potential policy changes. Given his history with tax legislation, particularly the Tax Cuts and Jobs Act (TCJA) of 2017, real estate investors are eager to understand what his new term might mean for 100% cost segregation tax savings. Here's a look at the possibilities and implications.

Understanding Cost Segregation and Bonus Depreciation

Before we speculate, let's clarify what we're talking about:

• Cost Segregation: This is a tax strategy used by real estate owners to accelerate depreciation deductions, thus deferring federal and state income taxes and increasing cash flow. By reclassifying assets into categories with shorter depreciation lives (like personal property or land improvements instead of the entire building), owners can enjoy quicker tax benefits.

• Bonus Depreciation: Under the TCJA, Trump's administration allowed for 100% bonus depreciation on qualifying property placed in service after September 27, 2017. This meant that businesses could deduct the full cost of eligible assets in the year they were placed in service, significantly reducing taxable income in the initial years of property ownership.

Trump's History with Real Estate Tax BenefitsDuring his first term, Trump was known for his real estate background, and his policies reflected a keen interest in benefiting the industry. The TCJA was a clear example of this, where:

• The act expanded bonus depreciation to include used property, not just new, which was particularly beneficial for real estate investors.

• It also set the stage for cost segregation to become more valuable by allowing 100% bonus depreciation on assets with a recovery period of 20 years or less, which includes many components identified in cost segregation studies.

Speculating on Trump's New Term

Policy Continuation and Expansion: Now that Trump is returning to office, there's a strong expectation that he will move to make the temporary provisions of the TCJA permanent or even expand them. His campaign has explicitly indicated interest in maintaining or enhancing tax cuts beneficial to businesses, particularly in real estate. There's been talk of extending 100% bonus depreciation beyond its current phase-out schedule, which would directly enhance the benefits of cost segregation.

Political and Economic Climate: The political landscape in 2025, following Trump's victory, is set with a Republican majority in both the Senate and the House, which significantly increases the chances of passing pro-real estate tax legislation. The economic climate, particularly in the commercial real estate sector, will be pivotal. If there are signs of downturns or if there's a need to stimulate investment, Trump might prioritize reinstating or expanding these tax benefits to boost the economy.

Investor Sentiment: There's a clear demand from investors for the reinstatement of these tax benefits. Commercial real estate professionals have been vocal about how advantageous these policies are, pushing for their continuation or enhancement. With Trump's background in real estate, this sector's support could be influential in shaping policy, potentially leading to favorable adjustments in tax legislation.

Potential Challenges and Criticisms

• Fiscal Responsibility: Critics of Trump's tax policies argue that they significantly reduce government revenue, leading to larger deficits. There would likely be resistance from those concerned about national debt and fiscal responsibility, potentially limiting the scope or longevity of any new tax benefits.

• Equity Concerns: There's also the debate over whether such tax policies disproportionately benefit the wealthy and large corporations, which could be a point of contention if public sentiment leans towards more equitable tax structures.

While it's speculative, the signs suggest that with Donald Trump’s return to the White House, there could be a push for policies that enhance or reinstate 100% cost segregation tax savings for commercial real estate. However, this would depend on numerous factors including political control, economic needs, and public opinion. For investors, keeping an eye on these developments could mean significant planning adjustments. As always, real estate professionals should consult with tax advisors to prepare for potential shifts in tax policy.