As the U.S. commercial real estate (CRE) sector grapples with high vacancy rates, surging loan delinquencies, and escalating financing costs, industry leaders are lobbying for a continuation of key tax incentives first introduced during Donald Trump’s administration. With an estimated $1 trillion in commercial real estate debt maturing in 2024, industry groups are appealing for bipartisan support to preserve tax provisions like the qualified business income deduction, capital gains tax benefits, and 1031 like-kind exchanges — tax measures that are critical to the sector’s financial stability.
The Commercial Real Estate Finance Council, a prominent nonpartisan trade group, underscores the potential impact of eliminating these tax breaks. “Do no harm is the biggest thing with real estate organisations,” said David McCarthy, head of legislative affairs at the council. He added that with commercial real estate’s high fixed costs, raising taxes would place further strain on a sector already reeling from diminished liquidity and rising operational expenses.
A coalition of trade groups is rallying to maintain key provisions of Trump’s 2017 tax cuts, several of which are set to expire by 2025. Chief among these is the 199A deduction, or qualified business income deduction, which allows owners of pass-through businesses — including CRE owners — to deduct up to 20% of their business income. This tax incentive has become a pillar for CRE owners who rely on it to offset high operating costs in a sluggish market. According to Brookings Institution research, the deduction’s expiration could introduce an additional tax burden just as CRE faces rising vacancies and credit shortages.
Both presidential candidates, however, present unclear outcomes for the CRE sector. Trump, whose campaign is heavily funded by the finance, insurance, and real estate sectors, has committed to making his tax cuts permanent, though he has yet to specify which measures, such as the 199A deduction, he would prioritise. In contrast, Vice President Kamala Harris has indicated she would roll back parts of the 2017 tax cuts but has not clarified whether the pass-through deduction would remain intact.
Capital Gains and 1031 Like-Kind Exchanges Under Scrutiny
Another tax provision at risk is the 1031 like-kind exchange, which allows property owners to defer capital gains taxes by reinvesting proceeds from property sales into new real estate. Harris has shown support for limiting these exchanges for high earners, aligning with President Biden’s 2025 budget proposals, which suggest capping this benefit. Meanwhile, Trump has yet to reveal specific plans regarding 1031 exchanges. Given the 11% delinquency rate in office-based commercial mortgage-backed securities, CRE leaders worry that changes to these tax provisions could dissuade investment and reduce liquidity across the sector.
Capital gains tax rates are another critical issue. Harris has proposed raising the top capital gains rate for households earning over $1 million annually to 28%, up from the current maximum of 20%. “The biggest concern for members is what’s going to happen to the capital gains tax rate,” said Aquiles F. Suarez, senior vice president of government affairs at NAIOP, the commercial real estate development association. “Higher capital gains rates could discourage property transactions, slowing the overall market,” Suarez added.
CRE’s Search for Adaptive Solutions
With record office vacancies and a high volume of debt coming due, the CRE sector is also weighing adaptive strategies to navigate a market in flux. Converting vacant office buildings into residential housing is one idea gaining traction, and Harris has expressed support for incentivizing such transformations. However, trade groups note that structural limitations make residential conversion feasible for only about 10% of office properties. Trump, on the other hand, has not endorsed the office-to-housing proposal, leaving this potential solution an unresolved part of the real estate policy discussion.
Political Contributions Reflect Industry Leanings
Reflecting the industry’s preference for tax continuity, the finance, insurance, and real estate sectors have donated significantly to Trump’s campaign, contributing $234.9 million versus $117 million for Harris, according to OpenSecrets. Large donations to Trump include $14.2 million from Robert Bigelow’s Bigelow Aerospace and $6 million from Cantor Fitzgerald, led by Newmark Chairman Howard Lutnick. Conversely, CRE leaders like Simon Property Group heiress Deborah Simon and Worthe Real Estate Group’s Jeff Worthe have backed Harris with seven-figure contributions, advocating for “stability in Washington” as a business priority.
With a challenging economic backdrop and impending tax policy changes, the CRE sector is navigating an uncertain future. Whether the next administration extends Trump-era tax benefits or moves to reshape them will likely shape the trajectory of an industry already stretched thin by economic headwinds.
