Tax Incentives in Commercial Real Estate

In the past few years, the federal government has used tax incentives to try to spur growth in the residential housing market. Now, commercial investors want their turn. The Community Recovery and Enhancement Act (HR 1147), a bill being pushed by lobbyists for the International Council of Shopping Centers (ICSC), would provide “short-term tax incentives to jump start reinvestment in commercial real estate”. ICSC believes that the bill would help stabilize community banks, prevent foreclosures and job losses and help lenders see their way clear to refinancing for borrowers with underwater commercial properties.

“This temporary and targeted legislation [would incorporate] market factors and economic incentives rather than direct government involvement,” explains Betsy Laird, ICSC’s senior vice president of global policy. The bill would require that at least “80 percent of the newly invested capital must be used to reduce the outstanding balance of the commercial loan, with the remainder going toward capital improvements such as energy efficiency enhancements and leasehold improvements to attract new tenants.” Investors would also be able to deduct losses “without regard to passive loss limitations” and the new investments would qualify for 50 percent bonus depreciation.