IREM AND CCIM TAKE KEY COMMERCIAL REAL ESTATE ISSUES TO CAPITAL HILL

TAX ISSUES: DEPRECIATION, DEPRECIATION RECAPTURE, LIKE-KIND EXCHANGE

• Depreciation – The current depreciation rules are out of date and do not reflect the economic life of structures. The 27.5- and 39-year cost recovery periods for real property should be shortened.
• Depreciation Recapture – Under current law, gain on the sale of real property is treated as ordinary income only to the extent of the amount of accelerated depreciation over the straight-line amount. Since there has been only straight-line depreciation for real estate since 1986, most depreciation of real property is not now subject to recapture.
• Like-Kind Exchange – The like-kind exchange technique is fundamental to the real estate investment industry. The current law provides investors with the maximum flexibility in managing their real estate portfolio. Essentially, real estate is an illiquid asset that requires substantial commitments of cash. Current tax reform drafts would repeal the tax deferral features of like-kind exchanges.