Real estate ownership has long been one of the three primary wealth builders and tax reducing tools for businesses and individuals. I covered this topic in my blog yesterday. That may change radically in 2017 under tax reform proposals pushed by the new Republican leadership.
The Congressional leadership in both houses and our new president have been clear about their primary goal of shifting the tax burden away from the top 5% and redistributing the tax costs onto middle class taxpayers. One of the primary means of accomplishing this goal without raising middle income tax rates is to change tax law affecting property taxes, mortgage interest and depreciation of real estate.
The current tax reform proposals, per coverage updated by WSJ yesterday, contain provisions to reduce or eliminate all three of these key tax deductions that drive real estate finances.
We are probable about one month away from the first introduction of a tax reform bill and perhaps two months away from understanding what provisions are likely to be approved. By the end of February 2017 we may be better able to forecast the future of real estate as a tax and financial planning tool.
I expect that client who want to reduce their taxes will need to rely on other strategies for 2017 and beyond. Clients should first invest the time to prepare a financial forecasts under a range of financial and tax possibilities. I typically prepare that forecast in the first few years of working with a new client. That tool can then be used to fine-tune the strategies once we know more about the future tax treatment of real estate.