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| Michael Bull in Radio Studio |
Those were some of the points made by a panel of accounting and real estate experts in the most recent episode of the “Commercial Real Estate Show” radio program, hosted by Michael Bull of Bull Realty.
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| Mitch Roschelle |
The episode provided an enlightening look at the many recent
federal tax changes, such as increased income and capital-gains rates, and
provided detailed analysis of their potential effects on the commercial real
estate sector.
“Taxes aren’t what’s been motivating commercial real estate
investors that have gotten back in the asset class in the post-recessionary period,”
said Mitch Roschelle, a partner at PricewaterhouseCoopers and the leader
of the firm’s U.S. Real Estate Advisory Group. “They like commercial real
estate because of its durability of income over time.”
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| Thomas Nice |
“They like it
because of its resilience in an unstable economic environment, and I don’t
think they’re going to run away from it because the tax on those earnings is
higher,” Roschelle added. “Any income-producing asset is going to have the same
adverse tax consequences, and real estate is less volatile than perhaps stocks
and bonds can be over time.”
The recent federal changes include the rise of the top marginal
income tax rate to 39.6 percent from 35 percent, an increase in the
capital-gains rate from 15 percent to 20 percent for top earners, and a new 3.8
percent tax on some investment income for individuals with adjusted gross
incomes above $200,000 and couples making more than $250,000.
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| Timothy Trifilo |
According to Thomas Nice, a partner with CohnReznick,
the heavier tax burdens are likely to give rise to an increase in 1031
exchanges, which under certain circumstances permit an owner to defer the tax
associated with a property sale if the owner then acquires a similar, or
"like-kind," property within 180 days.
“You may want to think and think real hard about doing a
deferred exchange,” Nice said.
Higher taxes also could affect the pricing of transactions
to some degree, added Timothy Trifilo, a tax partner with
PricewaterhouseCoopers. “It’s hard to say how [the changes] will affect the
volume of transactions,” he said. “What I think it may have a more direct
impact on in the short run would be pricing. Someone might be asking for more
now than they might have otherwise to cover the [tax increases].”
One benefit contained in the recent flurry of tax changes is
the extension through 2013 of the 15-year straight-line cost recovery of
qualified leasehold improvements, Trifilo added. Typically, those costs are depreciated
on a straight-line method over 39 years. The extension might make someone more
likely to rehab a building, Trifilo noted.
“From the investment sales perspective, there’s still a lot
of interest in the asset class, and I think transaction volumes in 2013 will be
up from where they were in 2012,” Roschelle concluded.
For a complete copy of the company’s news release, please
contact:
Stephen Ursery
The Wilbert Group
E-mail: sursery@thewilbertgroup.com
Office: (404) 965-5026
Cell: (404) 405-2354
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