Potential Property Tax Deduction Cap: Risks for Real Estate Developers and Investors
March 10, 2025 | Author: David J. Murphy
What’s being proposed?
Congress is negotiating a tax and fiscal package that threatens the commercial real estate industry. Lawmakers have proposed capping or eliminating state and local business property tax deductions. This proposal faces strong opposition from industry leaders and economic experts.
Republican lawmakers need new revenue sources to fund their priorities. They’re considering a cap on “Business SALT” deductions that would limit how much businesses can deduct for state and local property taxes.
The Real Estate Roundtable (RER) and sixteen other real estate organizations have sent an urgent letter to the House Ways and Means and Senate Finance Committees opposing this change.
This will hurt developers and investors and have ripple effects.
This proposal will harm real estate developers and investors in four major ways:
(1) Eliminating business property tax deductions will force you to pay federal tax on money you’ve already paid to local governments. This change will erase the benefits you gained from the 2017 Tax Cuts and Jobs Act (TCJA) and Section 199A.
(2) Your effective tax rate could approach 50% – levels not seen since the 1970s.
(3) Commercial property values will decline significantly, creating new stresses for banks with large commercial real estate loan portfolios.
(4) Higher tax burdens will make new housing development less profitable, worsening the national housing shortage and affordability crisis.
The consequences extend beyond property owners to the broader economy. The U.S. commercial real estate market, valued between $18-$22 trillion, supports approximately 15 million jobs and generates $2.3 trillion in GDP annually. Higher tax burdens could lead to job losses, increased rents for both families and businesses, and additional inflationary pressures. As noted by Real Estate Roundtable President and CEO Jeffrey DeBoer, this proposal could become “a recipe for a recession.”
Expert Analysis
The Tax Foundation indicates policymakers should tread carefully when considering SALT limits on corporations
Looking Ahead
The timing and outcome of this proposal remain uncertain. Republicans in both chambers remain divided on several key issues as they work to prevent a March 14 government shutdown. Disagreements persist regarding whether to pursue one comprehensive bill or a two-bill strategy, the size of spending reductions, debt ceiling considerations, and the appropriate budget baseline. These divisions could push tax reform discussions into the second half of 2025.
This article is provided for informational purposes only and does not constitute legal advice. Specific tax situations should be discussed with qualified legal and tax professionals.