The Real Deal New York

Here’s how Trump’s tax plan could help leveraged RE firms

Plan involves interest deductions and immediate write-offs

August 19, 2016 10:05AM

Donald Trump (Illustration by Lexi Pilgrim for The Real Deal)

Donald Trump (Illustration by Lexi Pilgrim for The Real Deal)

Donald Trump hasn’t released his own tax returns yet, but the GOP presidential candidate’s tax plan for the country looks like it could be a huge windfall for debt-laden real estate companies.

The plan would effectively provide negative tax rates for leveraged investments by allowing businesses to deduct interest and file immediate write-offs (known as expensing) for investments in equipment and buildings, the Wall Street Journal reported. Ultimately, that could push developers toward projects that only make sense with tax benefits. Under current law, companies must spread deductions over several years.

“It is insane to do expensing and continue to allow interest deductions,” said NYU law professor Lily Batchelder, a former aide to President Barack Obama. “This is converting the tax code basically into a direct spending program for anything that people can get a tax lawyer to say is debt-financed business investment.”

She added: “The people that would benefit most from this are people that would use a lot of debt and are in real estate.”

Trump has not officially announced the proposal, and the campaign has indicated it will release more details in the coming weeks. But last week Trump said he supported full expensing.

The real estate mogul has resisted ending interest deductions. “He just thought it would be hard for businesses to capitalize without this,” according to Trump economic team advisor Stephen Moore.

Expensing has become popular among Republicans as a way to spur business, while Democrats are concerned it could result in potential revenue loss.

According to the Congressional Budget Office, allowing immediate interest deductions could result in negative 61 percent tax rates.

“I guess the pro would be you really would encourage investment in plants and equipment,” said Steve Rosenthal, a senior fellow at the Tax Policy Center, said. “The con is that you would open up huge arbitrage opportunities.” [WSJ] — E.B. Solomont

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