Filing taxes are at the forefront of everyone’s mind right now, and commercial real estate investors are noticing some significant changes to the process. Specifically, there is now a cap on interest expense, which will limit the amount NYC commercial real estate investors can claim on their tax forms.

Why is there an interest expense cap this year?

The interest expense cap was baked into the Tax Cuts and Jobs Act of 2017. Prior to 2017, commercial real estate entities were able to deduct all of the interest on their loans within a given year. This offered a lot of savings, especially since commercial real estate investors throughout New York City rely on loans for transactions and projects of all sizes. But with the Tax Cuts and Jobs Act of 2017, all of that changed. Now, NYC commercial real estate investors are only able to write off interest expenses equal to 30 percent of their adjustable income. Property developers and investors in NYC who borrowed large sums will be greatly impacted by the interest expense cap.

There are exceptions to the interest expense cap

With all the changes to the tax code this year, there are few new rules that are without exemptions. New and small commercial real estate companies in New York City, for instance, do not have to adhere to the interest expense cap. To make use of this exemption, CRE companies must not have exceeded $25 million in revenue for the past three taxable years. CRE companies can also take advantage of a one-time election out of the interest cap, and the definition of real estate companies has broadened to include hotels.

When in doubt, seek professional assistance

The Tax Cuts and Jobs Act has offered a number of benefits to commercial real estate investors and property developers in NYC. However, the changes that may require one-time deductions or even extra payments need to be looked over carefully to avoid any mistakes when reviewed by the IRS. Adhering to the new tax guidelines may require an accountant or professional tax preparation service to navigate all of the new changes and how they might impact what you ow or what you can claim as a deduction.