- The final version of the Republican tax bill includes a change that would allow real estate investors to get a tax break.
- The change, according to reports, would likely benefit President Donald Trump and GOP Sen. Bob Corker.
- Corker denied that he flipped from a “no” on the tax bill to a “yes” because of the change.
Republicans revealed the final version of their massive tax bill on Friday, and a last-minute adjustment appears to have made it easier for some real estate investors to take a huge tax break.
The change would allow owners of business that hold certain types of depreciable assets, such as real estate, to receive a significant deduction on their profits.
The provision would also likely benefit President Donald Trump and Sen. Bob Corker, who has investments in real estate and flipped his vote to a “yes” on the tax bill Friday.
The deduction is a change to the tax treatment of so-called pass-through businesses. Pass-throughs are businesses in which the owner books the company’s profits as their personal income, like a limited liability corporation or a sole proprietorship.
In the final version of the bill, named the Tax Cuts and Jobs Act (TCJA), the owners of these businesses would get a 20% deduction on qualified income from the pass-through. The provision does have some guardrails that are designed to prevent owners of businesses like hedge funds from taking the deduction, and Republicans painted the provision as a way for small business owners to get a benefit.
In the Senate’s version of the deduction, owners of wealthier businesses with only a few employees were limited from getting the deduction, but the new bill changes that. Owners of large pass-throughs can now deduct 25% of the wages they pay to employees plus 2.5% of the purchase price of their depreciable assets.
Some real estate is considered a depreciable asset in tax treatment, despite market prices that can fluctuate over time. This means that owners of large real estate-focused pass-throughs would be able to get access to more of the deduction than in the previous versions of the TCJA.
Trump and Corker could benefit
A large chunk of Trump’s income is made though a series of LLCs and other pass-through entities that control his various properties.
While the original bill might have limited the amount that the president was able to deduct, the new provisions appear to open a method for him to claim the new deduction. It is unclear exactly how much Trump would save, since the president bucked decades of tradition and did not release hs tax returns.
Another beneficiary, according to the International Business Times and since confirmed by other outlets, would be Corker. According to the report, financial disclosure records show that Corker has large stakes in real estate LLCs that could receive substantial benefits from the new deduction, though it is unclear just how much the benefit would be.
Corker was the only Republican senator to vote no on the initial TCJA when it came to the Senate, but announced Friday that he would support the final version of the measure that was released by the conference committee.
The Tennessee Republican insisted over the weekend that he did not change his vote due to the new change, but sent a letter to Senate Finance Chairman Orrin Hatch to discern how the measure was inserted into the final bill.
Hatch slammed critics of the provision for calling it a kickback, saying the provision was added before Corker said he would change his vote.
“I am unaware of any attempt by you or your staff to contact anyone on the conference committee regarding this provision or any related policy matter,” Hatch’s letter said.
While the letter did not refute the idea that the change would benefit real estate investors, Hatch said that the provision was similar to a part of the House bill, so it was not dropped in out of the blue.
Senate Majority Whip John Cornyn, the second-highest ranking Republican, told ABC’s “This Week” that the provision was added to “cobble together the votes we needed to get this bill passed.”
The final TCJA is expected to be voted on by the House and Senate on Tuesday and Wednesday to fulfil GOP leaders’ goal of getting the bill to Trump’s desk before Christmas.
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