Multifamily Resilience in Uncertain Times
Beyond the Cap Rate: Multifamily Resilience in Uncertain Times
In our previous edition, we discussed how multifamily investments have historically proven their durability in fluctuating markets. As we look ahead, the emerging federal tax legislation may further fortify the resilience of this sector.
The new tax bill, currently navigating its way through Congress, includes several provisions with potential to directly benefit commercial real estate investors. While final outcomes remain pending, the framework suggests a continuation—and even an expansion—of certain favorable tax incentives.
Here are some key elements of the proposed legislation:
1031 Exchanges and Carried Interest Protections – Notably, the bill leaves these cornerstone provisions intact, preserving well-established tax deferral opportunities that many investors have long relied upon.
Increased SALT Deduction Cap – The state and local tax (SALT) deduction may rise from $10,000 to $40,000 beginning in 2025, though subject to income phase-outs.
Enhanced Estate Planning Tools – The estate and gift tax exclusions may increase to $15 million for individuals and $30 million for married couples, offering a window for substantial intergenerational wealth transfer.
QBI Deduction – The Qualified Business Income deduction could rise to 23% and become permanent, representing an ongoing tax advantage for pass-through entities.
Extended Bonus Depreciation – The bill proposes to extend 100% first-year bonus depreciation through 2029, a valuable tool for accelerating deductions on qualifying property and equipment.
Opportunity Zones Return – Opportunity Zones are poised to reappear for taxable years 2027 through 2033, albeit with modified provisions.
However, it’s important to consider that this legislation, if passed, is expected to increase the federal deficit by $2.8 to $4.3 trillion over the next decade. This, in turn, could contribute to upward pressure on interest rates—a consideration that prudent investors will need to account for.
In summary, these legislative changes, particularly those supporting depreciation and deferral strategies, may enhance after-tax returns and strengthen the resilience of multifamily assets. Careful evaluation of the bill’s final form, alongside proactive tax and investment planning, will be essential for investors positioning themselves for the next phase of growth.
We welcome the opportunity to discuss how these potential changes may impact your investment strategy and explore ways to position your portfolio for the years ahead. Please contact our office to schedule a confidential consultation and let’s chart a course forward together.