After a frenzy of congressional action to rewrite the tax code, salesclerks and chief executives are calculating their gains. Business was treated with the everyone’s-a-winner approach that ensures no summer camper goes home without a trophy.
Some got special prizes. Cruise lines, craft beer and wine producers (even foreign ones), car dealers, private equity, and oil and gas pipeline managers did particularly well. And perhaps the biggest winner is the industry where President Donald Trump and his son-in-law, Jared Kushner, made their millions: commercial real estate.
House and Senate Republicans, in their divergent bills, both offered steeply reduced rates to corporate giants, partnerships and family-owned firms across the board. But when it came time to eliminate special breaks or impose tighter standards, real estate was generally excused from the room.
Most businesses were hit with new limits on deductions for interest payments, but not real estate. Most industries lost the ability to defer taxes on the exchange of similar kinds of property, but not real estate. Domestic manufacturers and pharmaceutical companies lost some industry-specific breaks, like the tax credit for so-called orphan drugs, in exchange for lower rates.
The real estate industry ended up with an even more generous depreciation timetable, allowing owners to shelter more income.
And in a break from previous practice, rental and mortgage-interest income qualifies for a lower tax rate, the kind of special treatment traditionally reserved for long-term capital gains and certain qualified dividends.
“Real estate does great,” said Daniel N. Shaviro, a professor of taxation at New York University Law School, who as a congressional staff member helped write the 1986 tax overhaul. “It’s hard to imagine what they might have asked for that they don’t have.”
Real estate investment trusts, known as REITs, have extra cause for celebration. They are companies that make money by owning, financing and operating real estate. Both the Trump Organization and Kushner Cos., the family real estate firm partly owned by Kushner, have important deals with such trusts.
The Republican proposals sharply lower the top tax rate on the income that REITs and other businesses pass through to their owners and shareholders. Currently, those investors must pay taxes on that income at rates as high as 39.6 percent. Under the Senate provision, it would drop to 29.6 percent. The House bill drops the rate even lower, to 25 percent.