Although the bill was approved by both the house and senate it still has a long way to go. Both parties must now reconcile the bill by agreed to the same version before it can go to the President to sign into law. Many changes were made to the bill in order to win over the Senators who opposed parts of it, including a provision to keep the current individual alternative minimum tax (AMT), but with a higher exemption threshold. (The corporate AMT would also be retained.) An earlier version of the bill repealed the AMT.
The Estate Tax:
The repeal of the Estate Tax and therefore the repeal of step-up in basis, could result in a massive tax increase for those inheriting appreciated property and securities. Without stepped up basis, those individual will acquire the basis of the deceased which will be much lower than the fair market value at date of death.
Real Estate Tax Deduction:
For taxpayers whom report rental income and expense on Schedule E, the deduction for real estate taxes would most certainly be allowable, as this expense relates to an income producing asset.
Lower Pass Through Rate for Real Estate:
The purpose of the tax proposal is to generate jobs, stimulating the economy. Therefore we think that the proposed lower rate on pass-throughs would not apply to real estate as it is passive. We will not know the answer on this until the details are out. Initially our thoughts were that property owners are not employing workers, investing in capital, etc. On the other hand, if the argument is made that lower rates will inspire improvement to those properties, thereby employing contractors, investing in materials, etc… perhaps those lower rates will apply.
Assuming a bill is signed, initially we see property values decreasing followed by an adaptation to the new tax policy with a corresponding return to the norm which will take a few years.
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-Keith
