New Tax Law Favorable to Commercial Real Estate

On Dec. 17, President Obama signed an $859 billion tax cut and stimulus package that should strengthen commercial real estate and spur economic recovery. The legislation includes two tax extensions that will significantly influence the commercial real estate sector: the continuation of the 15 percent tax rate on capital gains through 2012, and the extension of the 15-year timeline for depreciating leasehold improvements through December 2011, retroactive to Jan. 1, 2010.

As a member organization of The Real Estate Roundtable (RER), a non-profit public-policy organization that represents the interests of real estate, the national Self Storage Association backed the tax provisions, which should enable investors to move forward with greater confidence. Based in Washington, D.C., RER focuses on policy areas governing tax, capital and credit, environment and energy, and homeland security.

According to the SSA, extending the 15 percent capital gains tax rate should encourage a range of desirable economic activities: the acquisition and development of commercial properties; lending to finance or refinance investment in those properties; and the employment of skilled workers involved in construction, renovation and remodeling.

Specifically, the new legislation will:

• Extend the current tax law on income, capital gains and dividends until 2012
• Reinstate and extend a number of business tax breaks through 2011, including real estate-backed provisions to provide for 15-year depreciation of leasehold improvements and same-year expensing of brownfields cleanup costs
• Provide immediate expensing of 100 percent of the costs of business assets whose depreciable life is less than 20 years (eligible assets include leasehold improvements)
• Allow 50 percent of the costs of similar investments made in 2012 to be expensed, with the balance of costs recovered via depreciation
• Reduce Social Security payroll taxes by 2 percent for workers in 2011
• Protect millions of Americans from getting hit by the alternative minimum tax
• Extend unemployment benefits for one year

Since jobs are essential to driving business demand for commercial space, RER welcomes the tax package and is hopeful it will help spark job creation in the private sector.

This breakthrough on taxes couldnt be more welcome, said RER President and CEO Jeff DeBoer to GlobeSt.com. By offering some predictability on tax policyalbeit temporarythis new law will allow businesses to better calculate their future costs, giving many of them more confidence to proceed with hiring and expansion plans.