At the end of 2015, President Obama signed into law the Protecting Americans from Tax Hikes (PATH) Act which offers some tax protection benefits of which net lease players should be aware. Specifically, PATH extends bonus depreciation for tenant improvements and interior buildouts through 2020, and expands the scope of eligible properties.
Bonus depreciation applies to renovations to the interior of a property, which can be depreciated at a higher rate to reduce tax liability. Previous rules only allowed for a 50% bonus to the depreciation amount for certain leased properties. For example, tenant improvements to a shell newly leased to McDonald's would be eligible. PATH extends the 50% amount through 2018, and eliminates the requirement that an eligible property be leased to a non-affiliated company.
For owners and developers who renovate a property for a new tenant, these laws make it marginally more attractive to hold instead of sell, especially if depreciation is needed to offset other income. Likewise, outside of net lease, owner-users who want to renovate their space now have another incentive to do so. Hopefully, these changes will also stimulate the broader economy.
At the end of 2015, President Obama signed into law the Protecting Americans from Tax Hikes (PATH) Act which offers some tax protection benefits of which net lease players should be aware. Specifically, PATH extends bonus depreciation for tenant improvements and interior buildouts through 2020, and expands the scope of eligible properties.
Bonus depreciation applies to renovations to the interior of a property, which can be depreciated at a higher rate to reduce tax liability. Previous rules only allowed for a 50% bonus to the depreciation amount for certain leased properties. For example, tenant improvements to a shell newly leased to McDonald's would be eligible. PATH extends the 50% amount through 2018, and eliminates the requirement that an eligible property be leased to a non-affiliated company.
For owners and developers who renovate a property for a new tenant, these laws make it marginally more attractive to hold instead of sell, especially if depreciation is needed to offset other income. Likewise, outside of net lease, owner-users who want to renovate their space now have another incentive to do so. Hopefully, these changes will also stimulate the broader economy.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
