Tax bill: How President Trump’s real estate investments may benefit

Update: This story was updated on Dec. 20 to reflect changes in the tax reform bill

President Trump has been bullish on the many different ways tax reform will supercharge the economy, make U.S. companies more competitive, and continue the stock market’s record rise. He’s also said, multiple times, that the legislation, on the verge of being passed by the House and Senate, won’t offer any advantages to himself.

During a speech in St. Charles, Missouri, in late November, the President said both his wealthy friends and his accountants were “going crazy” due to tax reform, and that they’d lose out due to changes in rates and deductions. “The rich people actually don’t like me,” he said.

Now that the bill is on the brink of passage, and analysts can glean a somewhat better sense of how the Tax Cuts and Jobs Act will ultimately impact tax breaks, rate reductions, and deductions, it’s clear President Trump may not have as much to worry about as he previously suggested.

The final package suggest President Trump and other wealthy real estate developers (as well as their accountants) will likely be quite happy. Here are the different ways tax reform benefits real estate moguls and big developers.

Lowering taxes on pass-through businesses

Pass-through businesses—partnerships, S-corporations, and limited liability companies (LLCs)—are corporate entities that allow business income to “pass-through” to the owner, thereby paying a personal income rate, as opposed to a business rate.

The Trump Organization, which owns more than 500 such entities, would see their annual tax bills drop, due to a rate cut from near 40 percent to 25 percent. Many of the most lucrative parts of the Trump Organization’s real estate empire—rental income, royalty payments, and licensing fees—are organized as pass-through businesses.

In addition a last-minute change added during the reconciliation process, the so-called “Corker Kickback, would only amplify these benefits, offers a 20 percent deduction for so-called "pass-through" entities, such as LLCs, LPs, and S-Corporations.

Property development deductions and commercial real estate breaks

The final bill also contains a number of deductions and breaks that would particularly help real estate developers. According to a Washington Post analysis, tax reform would allow developers to deduct interest expenses for a variety of real estate activities, including construction, management, and property development.

Another provision would maintain the “like-kind exchange,” an exemption that lets a business avoid taxes if it reinvests profits in another business, except in the case of commercial real estate development. A New York Times analysis suggested this switch would allow owners of commercial real estate to “keep flipping the properties until they die without ever paying any capital gains tax.”

Eliminating the Alternative Minimum Tax (AMT)

This mechanism put a minimum on how much wealthy individuals would pay, in effect limiting the number of deductions that could be claimed by taxpayers. According to an analysis by Time of the leaked 2005 Trump tax return, the AMT increased his final tax bill by $31.2 million that year.

In addition, the doubling exemptions to the estate tax will give wealthy families the ability to pass along more assets and wealth to children, a huge tax savings for someone with extensive wealth who may want to pass the family business to his or her heirs. Bloomberg estimated that a full repeal would save Trump more than half a billion dollars, based on an estimated net worth of $3 billion, so he’ll still save substantially with the current bill.

Preservation of the Historic Tax Credit

Much-loved by preservationists, these credits help restore and renovate historic structures and have been a boon for urban development. The Trump Organization is currently seeking those credits to offset $40 million in costs for the transformation of Washington, D.C.’s post office into a Trump Hotel.