The Trump administration currently does not have a plan to change the 1031 exchange rules, a stark contrast to Hillary, who had plans to curtail 1031 exchanges severely.

President-elect Trump and his administration will face stiff opposition on some tax policy changes from Democrats, yet initially he will have both a House and Senate controlled by Republicans so one would think most of the policy changes will pass without too much difficulty. Nevertheless, the industry will be anxiously watching to see what tax changes 2017 will bring.

In the aftermath of the country's most historic and polarizing election, the Trump administration plans to make changes to tax policy including: decreasing the number of tax brackets, lowering the highest marginal rates, drastically slashing corporate tax rates and giving carried interest ordinary income treatment.

Trump has proposed to continue the capital gains at 20% and as part of his repeal of Obamacare the 3.8% Net Investment Income Tax (NIIT) would be abolished. The NIIT was essentially an add-on tax to Capital Gains and Dividends used to help fund Obamacare.

Reductions in the corporate income tax rate and individual rates are also investor friendly moves. The change which affects the real estate industry the most, however, is his proposal to tax carried interest as ordinary income. Carried interest is often baked into development deals whereby a developer or promoter, puts in a small amount of capital relative to the size of the project and then based on the success of the project gets a much larger share of the profits back. The difference between what they put in and get back is the “carried interest,” also referred to as a promoted interest or a promote. Currently developers and deal promoters get capital gains treatment on this promoted interest, Trumps plan would have this taxed at ordinary rates.

It's a curious move for a guy who presumably made a lot of his money over the years on carried interest. It seems his motivation is to go after hedge fund managers and the like, whom he views with disdain, but also take advantage of these rules. In Trump's view, they're nothing but paper pushers who don't actually do anything yet makes lots of money in the process and pay very little in taxes to boot. Nevertheless, the people affected by this in the real estate industry are going to be developers and deal promoters; the typical real estate investor, or REIT for that matter isn't likely to greatly impacted.

The Trump administration currently does not have a plan to change the 1031 exchange rules, a stark contrast to Hillary, who had plans to curtail 1031 exchanges severely.

President-elect Trump and his administration will face stiff opposition on some tax policy changes from Democrats, yet initially he will have both a House and Senate controlled by Republicans so one would think most of the policy changes will pass without too much difficulty. Nevertheless, the industry will be anxiously watching to see what tax changes 2017 will bring.