TAX LEGISLATION in 2023—and SCHEDULED TAX CHANGES IMPACTING REAL ESTATE
Now that 2022 is in the rear-view mirror, we need to ask and plan for potential changes in Federal (and state) legislation that may come about in 2023 et seq., which can impact real estate, especially as to real estate tax issues.
This Tip highlights a few of the changes that have been proposed for 2023, proposals that reasonably might be made by 2023 legislation, and the changes that will occur in 2023 simply because we have moved to calendar year 2023 et seq., making some changes occur ipso facto, simply because of prior legislation that was passed which is scheduled to impact future years as time moves forward.
The following discussion examines a few of these changes or potential changes noted.
Corporate Rates-an Example of Changes Coming:
The current Federal income tax rate for corporations is now a flat 21%. This rate, along with many other changes as noted below, will automatically be modified as of 1/1/2026. These changes come about because of the Tax Cuts and Jobs Act of 2017 (TCJA), which provided for temporary changes in many instances. Once the temporary changes run through the given time frame, such as through 2025 in the case of the corporate tax rate, the 2017 Act changes provided that the rate that existed prior to the 2017 Act changes will come back in to play. Again, this is the rule as to corporate tax rates and many of the other rules, noted below.
This means that Congress, if it fails to act and change the above 2017 rules, will not have to do anything, except wait until the expiration of 2025—in which case the prior tax rate for corporations (among others) will come back in to play.
Many other changes, as discussed, below, will also be made, without the need for Congress to act, after 12/31/2025.
Changes After 2025
The following is a short summary of some of the key areas that will be impacted with Federal
tax changes in our law after the year 2025.
Unless the following tax provisions are modified, on January 1, 2026 the following are a few of the modifications that will apply because of the earlier mentioned structure contained in the 2017 TCJA:
· The individual tax rate structure will revert from tax brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37% back to 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Code Section 1.
· The section 199A Qualified Business Income Deduction will disappear (for independent contractors and owners of pass-through businesses). Code Section 199A.
· The standard deduction will drop from an inflation adjusted amount of $24,000 to $12,700 for joint returns and half these amounts for single filers. Code Section 63.
· Personal exemptions in the amount of $4,050 for filer and spouse and each dependent will be restored. These are currently set at zero for 2023. Code Section 151.
· The $10,000 limit on the state and local tax (SALT) deduction will disappear. Code Section 63.
· The $750,000 limit on the amount of a mortgage that can be employed to determine the interest deduction will move to $1 million. Code Section 163.
· Personal Casualty losses will again be deductible (and not just in a presidentially declared disaster area). Code Section 165 (c) (3).
· Miscellaneous itemized deductions will again be deductible. Code Section 67.
· The Pease limitations on itemized deductions will again be in effect. Code Section 63(d).
· Moving expenses will again be deductible. Section 162.
· The rehabilitation tax credit for older buildings will once again be available for non-certified historic structures built before 1936. Code Section 47.
· The Exemption amount for estate and gift tax transfers will be substantially changed.
The 2023 Estate and Gift Unified Tax Exemption is currently almost 13 million for each taxpayer. However, after 2025, the exemption moves down to a little over 5 million. Code Section 2210.
And more....
Source: Public Law 115-97, known as the Tax Cuts and Jobs Act of 2017. Tax Foundation
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Thus, taxpayers and their advisors, must be very aware that even if Congress does not act before the end of 2025 as to the above areas of tax law, changes, major changes, will take place on 1/1/2026.
For more on these issues, see Levine, Mark Lee and Segev, Libbi Levine, Real Estate Transactions, Tax Planning 2023, published by Thomson Reuters West.