The new tax plan—which has officially passed the House and Senate—will likely prove to be a neutral for the commercial real estate market. That doesn't mean it is without benefits, according to Jeff Rinkov, president and CEO of Lee & Associates, who believes the corporate tax reduction will be a positive thing for the economy. We sat down with Rinkov exclusively to get his thoughts on the impacts of the new tax plan.
GlobeSt.com: What is the broad economic impact of the new tax plan?
Jeff Rinkov: The tax plan will hurt California and New York, because you will lose the ability to deduct taxes personally that you paid for states and municipalities. The overall concept of corporate tax reduction and the opportunity for large multi-national corporations to repatriate large chunks of capital is going to be very meaningful the flow of money in the economy. The economy is based on two things: demand and the speed at which money changes hands. We already have really strong demand and now you are going to add the catalyst of a larger capital base. We are in a corporate environment where people are looking for places to invest, and they see that the economy has reached stability. I think that you are going to see wage growth, which should offset some of the reductions from a percentage tax basis. Additionally, some of the investment that you will see should spur greater tax revenue.
GlobeSt.com: How will it impact commercial real estate specifically?
Rinkov: I think that is harder to say. Most commercial real estate is held in single-purpose entities. Those will benefit from the ability to run as business where they can deduct interest on income property, no cap on property tax and state and local taxes will all be deductible as business expenses. I think the tax plan will free up more dollars for corporate America to acquire real estate, but I think regional and local investors it is probably somewhat neutral, except for the corporate tax rate, which is a benefit.
GlobeSt.com: How will the plan affect the housing market and home construction?
Rinkov: Coastally, I think that it might be effective. If you are going to have a cap on the mortgage interest rate deduction and you are going to have a cap on the deductibility of property taxes, most of the country won't feel that. You are going to have a West Coast effect and an East Coast effect. Most of the people in the middle of the country aren't getting mortgages that are more than $500,000. That is probably where you need more construction activity, starter homes and millennials that are growing their family.
GlobeSt.com: Will it benefit the rental market?
Rinkov: I think the rental market continues to succeed regardless. Not regardless of any factor, but there is an affordability problem, and until we see really substantial wage growth, people graduating from collage really can't afford a house anywhere. I don't know that they are really ready for homeownership, and I think the American dream has changed a little bit.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Kelsi Maree Borland
