Julio Gonzalez, National Tax Reform Expert and CEO of Engineered Tax Services, whose strong presence is helping define our current tax laws has been working towards good tax policies and calling out less favorable ones amid COVID-19 stimulus efforts.
With the widely-debated next round of stimulus legislation underway, the HEROES Act, there is much debate surrounding its implications. One concern of Julio Gonzalez is the immediate expensing of real estate. Lately, he has been doing everything possible to educate policymakers of the risks it poses to the long-term health of the economy.
Those in favor of immediate expensing policies are the likes of the Tax Foundation, Larry Kudlow and Congressman Kevin Bradoy. The reasoning behind their support of this issue raises questions due to the historical effects of similar measures that devastated the real estate and banking industry in the 1980s. If we take a trip “Back to The Future” we passed tax laws that allowed accelerated depreciation of entire building structures, which resulted in one of the worst depressions in the real estate industry. This boom and the bust of the 1980s real estate market is often described as the result of overbuilding. Overbuilding in real estate means that developers build more projects than markets demand, leading to a decline in the value of real estate.
In an effort to avoid repeating the problems that overbuilding caused (when we last had tax law that accelerated full structure depreciation) is the reason that industry associations like the Real Estate Roundtable opposed efforts to move to the full-expensing of structures under the Tax Cuts and Jobs Act (TCJA) of 2017. Ultimately the Real Estate Roundtable prevailed, and Congress elected not to exclude full expensing of structures in the TCJA due to that it was expensive and risky.
The Tax Foundation indicated that there have been tax rules like the immediate expensing of structures in the 80s, that were put in place to fix the tax loopholes and downfalls of the real estate industry. While tax law changes were made in an attempt to stop real estate tax shelters, such as; passive activity loss, at-risk limitations, and NOL carry-forward rules, the IRS is unable to effectively audit the number of claims made each year based on these provisions. Leaving Small Business owners struggling with the understanding of complex tax rules that ultimately cannot be used.
Again, what the Tax Foundation is not reporting is that the supposed fixes are not solid.
After several press appearances, where Julio Gonzalez articulated his concerns about immediate expensing, the Tax Foundation put out a statement recognizing that this tax law imploded the real estate industry in the 80s, but that in their opinion, it would be different this time. Julio Gonzalez questioned the validity of the Tax Foundation view on the consequences of immediate expensing and invited them to go live with him on America's Voice this Thursday, July 30th at 2:30pmEDT.
