December’s passage of the long-awaited Tax Cuts and Jobs Act (TCJA) was a watershed moment for commercial real estate in particular, as NAIOP president and CEO Thomas Bisacquino emphasized at the outset of the association’s recent webinar on the new tax laws. “Tax is profoundly important to our members and their businesses,” he said.

Yet, although the sweeping legislation is mainly a positive for CRE, plenty of questions remain unanswered. The 20% flow-through deduction is probably the most talked-about, and least understood, provision in the new tax law, and calls for the greatest amount of guidance from Congress. That’s why presenter Crystal Christenson devoted the biggest share of the NAIOP webinar, “The 2017 Tax Cuts and Jobs Act—Impact on Members of the Real Estate Industry,” to a walk-through of the flow-through provision.

Does a business’ income qualify for the full 20% deduction? What’s the long-term plan for the flow-through entity? And what happens if rates change in the future? These are among the most common themes when Christenson–a partner in the real estate and construction practice at accounting firm Wipfli LLP–talks with her clients about the newly enacted pass-through provision.

“You have to get some deep conversations about matters other than taxes,” she told the webinar audience.

Getting answers to those and other questions about the flow-through provision might call for some patience. On the new provision’s “specified service business” limitation, for instance, Christenson and her colleagues had hoped to see some additional guidance from Washington by summer. Now the guidance is more likely to emerge sometime in the fall.

Even without flow-through, though, there’s plenty else in the new tax law that is far from cut-and-dried. Under the revised rules for tax depreciation, real property acquired after Sept. 29, 2017 may be eligible for the bonus depreciation rate of 100%–but only if it meets the definition of qualified improvement property (QIP). Congress apparently intended to add QIP to the TCJA provision describing property that qualified for a 15-year recovery period, but neglected to actually do so.

In some CRE circles, especially those that focus on net lease, uncertainty over whether 1031 exchanges would or would not survive tax reform was a common talking point in the run-up to passage of the TCJA. Although 1031s survived, their scope was reduced: personal property is no longer eligible for the tax benefits of these like-kind exchanges. Only real property qualifies now.

However, Christenson pointed out that while losing the ability to receive 1031 benefits for sales of personal property may be a tough blow for some, the 1031 program itself is alive—a better outcome than many had feared.

There have been other instances where tax breaks have been scaled back or eliminated altogether. Grants from governments and civic groups formerly could be received tax-free, Christenson said. Now they’re taxable. And new limits in the provision for excess business losses mean that net operating losses, which previously could offset 100% of regular taxable income, now can offset only 80%.

The TCJA also established a new holding period for carried interest. Capital gains treatment on real property sales is still available, but only on certain carried interest after a hold of at least three years, up from the previous one-year hold.

Also narrower is the scope of properties eligible for the Rehabilitation Tax Credit. This incentive formerly allowed a 20% credit for the cost of rehabbing a certified historic building, and a 10% credit on properties placed in service before 1936. Pre-’36 properties that haven’t been certified as historic no longer qualify for the incentive.

Another provision in the TCJA, though, provides an investment incentive that wasn’t there before. The new tax law provides for investment in Qualified Opportunity Zones via opportunity funds that can help finance the redevelopment of abandoned buildings or construction of low-income housing. Christenson noted that this incentive is in the spotlight at the moment because governors have until March 22 to designate these zones within their states.

What’s the incentive for investors to participate in these opportunity funds? A temporary deferral on capital gains reinvested into the funds, Christenson explained.

The dreaded alternative minimum tax has been repealed for corporations, but not for individuals. That’s likely a sore spot for many investors: “if you’re like my clients, you hate AMTs,” said Christenson. However, she pointed out that the TCJA has reduced the likelihood of AMTs applying to individuals.

Neither lawmakers nor the IRS are likely to act quickly to fill in all the missing pieces of the puzzle on some of the new tax law’s more ambiguous provisions for CRE businesses and individual investors. With that being the case, Christenson encouraged everyone in the NAIOP audience to talk to their accountants and model their tax situations.

For comments, questions or concerns, please contact Paul Bubny