Industry Insights

Tax Reform:  Key Considerations for Construction & Real Estate Companies

March 2017
Author:  Scott Humphrey

Scott Humphrey

Director

Tax

Construction & Real Estate
Manufacturing & Distribution

14241 Dallas Parkway, Suite 1100
Dallas, Texas 75254-2961

Dallas
972.702.8262

The political climate in Washington, D.C., along with recent remarks from congressional leaders and White House officials, seem to indicate the environment is ripe for tax change in 2017 and beyond. Even so, there are differing opinions about these major issues:

  • When legislative language would be drafted and introduced
  • How the legislation will read
  • If there will be efforts to garner bipartisan support
  • If the reform legislation would be retroactive to the beginning of 2017

Resolving the many differences within the current political agenda may make tax reform difficult to accomplish.

Though there have been many tax reform proposals, those put forth by House Republicans and President Trump are most likely to heavily influence tax change with Republicans in control of both Congress and the White House. If we see tax reform, the House Committee on Ways and Means Better Way for Tax Reform Blueprint (House Blueprint) is a likely starting point. Further, recent statements from House Speaker Paul Ryan and House Committee on Ways and Means Chairman Kevin Brady indicate these efforts may already be underway. Although the two proposals provide insight into how tax reform may look, they aren’t yet fully developed—and legislative language will be necessary to understand how the concepts would operate. Read “Election Results May Lead to Tax Changes in the New Year” to learn more about these proposals and how they compare to current tax law.

Despite the facilitative political environment, it’s difficult to predict the possibility or substance of tax reform without detailed proposals given plenty of differing opinions. Even so, possible tax reform can affect you, and understanding potential outcomes is important for your tax planning strategy.

To help you navigate uncertainty surrounding tax reform, here are some key areas and planning considerations in the Construction and Real Estate industry that BKD’s tax professionals will be watching for in possible tax reform legislation.

  • A repeal of the Patient Protection and Affordable Care Act would remove the health insurance mandate. However, the real issue would be its effect on insurance payments. Competition is strong for skilled labor, so it’s unlikely construction companies would drop coverage.
  • Carried interest tends to be a hot topic for private equity, but a significant amount of real estate funds use a similar structure. President Trump may be developer friendly, given his real estate background, but to end carried interest for private equity and hedge fund managers would loop in his fellow developers.
  • Lower tax rates are likely to benefit construction companies, allowing them to retain cash that should increase their bonding capacity. Lower rates may not have as much effect on real estate developers, who currently benefit from preferential rates.
  • Limits on interest deductions would greatly affect financing on projects and slow down their development.
  • Banking industry deregulation should loosen the reins on lending. The “America First” mentality should increase commercial real estate needs and then drive other areas of real estate.
  • Additional infrastructure construction spending with President Trump’s $1 trillion infrastructure proposal would create construction company opportunities, especially for those working on U.S. roads, bridges and airports.

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While it’s still too early to predict the timing and substance of possible tax reform, reviewing your tax plan with your BKD advisor on an ongoing and regular basis will help prepare you for potential tax changes.

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