Construction Today - Volume 16, Issue 2 - 13
depreciation, amortization or depletion, for tax years beginning
before Jan. 1, 2022.
The construction industry does have an advantage, however.
The act allows real property trades or business using the alternative depreciation system to elect not to be subject to the business
interest deduction limitation.
Limitation on Losses
For tax years beginning in 2017, the act disallows an excess
business loss of a taxpayer other than a C corporation. An excess
business loss is treated as part of the taxpayer's net operating
loss carryover to the following year, and may be carried forward
indefinitely. An excess business loss for the tax year is the excess
of aggregate deductions of the taxpayer attributable to trades or
businesses of the taxpayer, over the sum of aggregate gross income or gain of the taxpayer plus a threshold amount ($500,000
for married taxpayers filing jointly; $250,000 for all other taxpayers (indexed for inflation)). The limitation applies at the partner
or S corporation shareholder level. The limitation expires after
December 31, 2025.
At least one tax act provision may have an indirect effect on
the construction industry.
Mortgage Interest Deduction
Residential construction companies could be negatively impacted by a reduced mortgage interest deduction for their customers.
The act reduces the mortgage interest deduction to interest on
$750,000 of acquisition indebtedness interest for debt incurred
by a company after Dec. 15, 2017. The $1 million limitation will
remain for older debt.
The deduction is not limited to interest on a taxpayer's principal residence, as originally proposed, which provides some relief
for builders in vacation areas. For tax years beginning after Dec.
31, 2025, the limitation reverts to $1 million regardless of when
the debt was incurred.
Unfortunately for contractors, the act suspends the mortgage
interest deduction for interest on home equity indebtedness for
tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026,
and could slow home improvement projects.
Whether the 2017 tax act will be good or bad for the construction industry depends on a variety of factors. A lower tax rate
and enhanced deductions for businesses that buy machinery
or equipment will likely help to reduce tax bills for much of the
construction industry. But new limits on deductions for interest
and business losses could pose difficulties for businesses running short on capital. Similarly, the curtailed mortgage interest
deduction might add to residential construction industry woes if
the economy cools down.
VOLUME 16, ISSUE 2 CONSTRUCTION-TODAY.COM