IMPORTANT: New Proposed Tax Legislations Benefits RE Investors

[Johan Garcia]

You might want to hold-off from electronically filing your 2023 tax returns until January 29th. By this date congress is aiming to pass the Tax Relief for American Families and Workers Act. This tax legislation extends or reverts to pre-2023 tax treatments of very favorable tax legislation that apply to real estate investors. These are two important legislations are 100% bonus depreciation (section 168(k)) and EBITDA interest expense limitation computation (section 163(j)). As of now this legislation is proposed but the passing of these legislation would be retrospective to tax year 2023.

- 100% bonus depreciation allows you to fully expense purchased assets (think of equipment or any that has a depreciable life under 15 years) in the year acquired. 

- The EBITDA add-back computation for the interest expense limitation allows you to be fully able to expense your interest expense. 

Here's some additional commentary on proposed tax legislations:

100% Bonus Depreciation:

The provision extends 100-percent bonus depreciation for qualified property placed in service after December 31, 2022, and before January 1, 2026 (January 1, 2027, for longer production period property and certain aircraft) and for specified plants planted or grafted after December 31, 2022, and before January 1, 2026. The provision retains 20-percent bonus depreciation for property placed in service after December 31, 2025, and before January 1, 2027 (after December 31, 2026, and before January 1, 2028, for longer production period property and certain aircraft), as well as for specified plants planted or grafted after December 31, 2025, and before January 1, 2027.

EBITDA add-back computation for interest expense: 

The provision extends the application of EBITDA to taxable years beginning after December 31, 2023 (and, if elected, for taxable years beginning after December 31, 2021), and before January 1, 2026. Therefore, for taxable years beginning after December 31, 2021, and before January 1, 2024, ATI is computed with regard to deductions allowable for depreciation, amortization, or depletion (i.e., earnings before interest and taxes (EBIT)). However, ATI may be computed as EBITDA, if elected, for such taxable years. For taxable years beginning after December 31, 2023, and before January 1, 2026, ATI is computed as EBITDA. For taxable years beginning after December 31, 2025, ATI is computed as EBIT.

Reach out if you have any questions. 

- Johan Garcia, CPA, MST.