How The Trump Tax Plan Will Impact The Real Estate & Construction Industries

Last month, we published a Tax Advisory explaining Donald Trump's tax plan. The purpose of this article is to highlight a few of its provisions that seem likely to impact the real estate and construction industries.

Capital gain property (including real estate)

When sold

Current laws provide favorable federal tax rates on long-term capital gains. Depending on what "regular" tax bracket the recipient is in, the capital gain rates are 0%, 15%, or 20%. This does not change much at all under the Trump plan. The same 0%, 15%, and 20% rates are proposed, again varying depending on the "regular" bracket applicable to the recipient. Those regular brackets differ, but the overall structure and impact of capital gain tax promises to look very much like it does now.

When donated to charity

Charitable contributions of certain property (including appreciated real estate that was held for more than one year) currently generate two significant benefits: (1) a charitable contribution deduction equal to fair market value, rather than cost; and (2) the ability to permanently avoid paying tax on the inherent gain (value in excess of cost basis).

Trump's plans call for many itemized deductions to be eliminated, but for charitable contributions to survive. However, the plans also call for itemized deductions to be capped overall at $100,000 for single filers and $200,000 for joint filers. It is unclear whether charitable contributions will be subject to the cap, or exempt from it.

When held until death

Currently, an estate tax is assessed on a decedent's property if the net value at the time of death exceeds $5.49 million. Generally, whether or not the tax applies, beneficiaries who inherit such property receive it with a new cost basis equal to the value as of the decedent's date of death. Any built-in gain as of that date permanently escapes income taxation. The focus, under current laws, is on the overall estate value. If big enough, it is taxed; if small enough, it is not. Either way, the beneficiary receives a stepped-up basis.

Under Trump's plan, the focus shifts to built-in gains at the time of death. An estate tax will no longer be assessed on overall value, but if previously-untaxed gains exist at the time of death, and those gains exceed $5,000,000, the gains will be taxed at that time. We are not provided enough details to know with certainty, but it appears that securities not subject to this tax will pass to beneficiaries at historical cost...