LANSING, MI (WILX) Michigan’s real estate industry is adjusting to it’s new normal. In-person showings are now allowed, but there are still restrictions in place.
Republicans put a $500 billion loophole in the Coronavirus bailout law for real estate investors. Does this make sense for the country?
The coronavirus relief bill was filled with special favors inserted by people in both parties which of course do not make sense for the country. Some of the individual provisions might be good ideas, but they should have been debated openly and independently, not shoved through under cover of disaster. Most of them are really bad ideas that Congress couldn’t stomach in normal times. This is the pattern for all “relief” bills, unfortunately.
However, there’s no $500 billion loophole for real estate investors in there. For one thing, a loophole is an unintended consequence. We will no doubt find some of those, but most of the giveaways in the bill are explicit, not loopholes.
Most of the real estate provisions are benefits to renters and owners who borrowed in government backed loan programs, not real estate investors in the sense I think you mean it.
There are some technical adjustments to taxes on real estate investment which benefit real estate investors, but they’re nowhere near $500 billion. The biggest one is that excess depreciation losses from 2018 – 2020 in real estate can be used to offset other investment income. This ability was taken away by the 2017 tax cut bill, so this provision effectively delays implementation for three years. The estimates I’ve seen of the effect is to delay—not eliminate—$50 billion of tax. That is, investors get to pay less tax in 2020 in return for paying more tax later.
Among all the giveaways inserted into the bill, this one is more defensible than most. Real estate investors complained that the 2017 bill was unfair because it changed the tax rules on transactions that had been locked in before the bill. It’s not unreasonable to delay implementation of a new tax rule until people have an opportunity to restructure their investments in accordance with it. Also, there’s no principle that determines how much of one kind of loss can be used to offset profits elsewhere, so both the new and the old rule are equally sensible. Finally, you can argue that putting $50 billion into investors’ hands in 2020 is good for the economy, and at least this giveaway will be repaid later, unlike most of the special favors in the bill.