5. State and local tax deduction
A very impactful change included
in the final bill is the limiting of the
deduction available to individuals for
sales, income, or property taxes paid
to state or local tax authority to
$10,000 ($5,000 for a married tax-
payer filing a separate return) for tax
years beginning after Dec. 31, 2017
and beginning before Jan. 1, 2026.
This limitation does not apply to
property taxes paid or accrued in
connection with carrying on a trade
or business.
The limitation does not apply to
state and local taxes of businesses
taxed as a ‘C’ corporation.
The bill specifically includes a pro-
vision that disallows a 2017 deduc-
tion for prepaying state or local
income tax for a taxable year begin-
ning after Dec. 31, 2017. Any amount
paid in a taxable year beginning be-
fore Jan. 1, 2018 shall be treated as
being paid on the last day of the tax
year for which the tax applies.
6. Depreciation changes
The bill includes a provision that
allows for 100 percent expensing
through bonus depreciation of cer-
tain business assets placed in serv-
ice after Sept. 27, 2017 through Dec.
31, 2022. The amount of bonus de-
preciation allowed is then phased-
down over four years as follows
starting: 80 percent in 2023, 60 per-
cent in 2024, 40 percent in 2025, and
20 percent in 2026. The requirement
that the property be new was also
removed and replaced with a re-
quirement that the property simply
be new to the taxpayer – an impact-
ful distinction.
The bill includes some additional
changes that have the potential to
benefit many contractors. For exam-
ple, Section 179 expensing limits will
be increased to $1 million with the
phase-out threshold being increased
to $2.5 million with both thresholds
subject to inflation increases for tax
years beginning after Dec. 31, 2017.
Furthermore, the definition of quali-
fied property is expanded to include
improvements to non-residential real
property including roofs, heating,
ventilation, and air-conditioning prop-
10 – MARCH 2018 — Florida Construction News
erty, fire protection and alarm sys-
tems, and security systems if placed
in service after the date such real
property was first placed in service.
7. Interest expense deduction
limitation The bill also includes a provision
that limits the deduction for interest
expense incurred by a trade or busi-
ness to the sum of business interest
income, floor plan financing interest
and 30 percent of the adjusted tax-
able income of a taxpayer for the
year. For tax years beginning before
Jan. 1, 2022, adjusted taxable in-
come will be computed without re-
gard to depreciation, amortization, or
depletion expense. Adjusted taxable
income is otherwise generally de-
fined as a taxpayer’s taxable income
without regard to any income, gain,
deduction or loss not properly alloca-
ble to the trade or business, any
business interest expense or busi-
ness interest income and any net op-
erating loss.
Real property trades or busi-
nesses, including rental property ac-
tivities that qualify as a trade or
business, may elect out of the inter-
est deduction limitation if that trade
or business uses the alternative de-
preciation system, which generally
results in longer, slower depreciation
deductions. Any interest not de-
ductible for any tax year shall be car-
ried forward indefinitely and treated
as business interest paid or accrued
in the succeeding tax year.
An exemption to these rules ap-
plies to taxpayers with average an-
nual gross receipts for the prior three
tax years of less than $25 million.
8. Domestic Production Activities
Deduction (DPAD) repealed
For tax years beginning after Dec.
31, 2017, DPAD (also known as Sec-
tion 199) is repealed. DPAD was a
deduction allowed under pre-act
rules that allowed contractors per-
forming new construction or sub-
stantial renovation in the U.S. to
claim a deduction of up to nine per-
cent of taxable income (with certain
limitations). 9. Like-kind exchanges
Under the new law, like-kind ex-
changes are limited to only ex-
changes involving real property that
is not primarily held for sale. This
new limitation applies to exchanges
completed after Dec. 31, 2017; how-
ever, a transition rule allows like-kind
exchange treatment for any property
disposed of in an exchange on or be-
fore Dec. 31, 2017, or for any prop-
erty received by a taxpayer in an
exchange on or before the same
date. This exception generally allows
for like-kind exchanges already in
process to still take advantage of the
current like-kind exchange rules. This
may have an impact to contractors
who have typically exchanged equip-
ment and machinery in the past.
10.Estate and gift taxes and
generation-skipping transfer tax
The law doubles the base estate
and gift tax unified credit exclusion
to $10 million, effective for dece-
dents dying and gifts made after
2017 and before 2026. The bill also
increases the GST exemption to $10
million. This effectively increases the
inflation-adjusted exclusion and ex-
emption amounts to $11.2 million
($22.4 million for a married couple)
for 2018.
These increased exclusion and ex-
emption amounts will provide plan-
ning opportunities for contractors
looking to transition their estate in
the coming years.
In conclusion . . .
As there are far more elements to
the tax reform than covered here,
contractors may consider familiariz-
ing themselves with the finer details
of the changes. Looping in your
trusted advisor and CPA is strongly
recommended to ensure you are pre-
pared for the oncoming effects –
both favorable and complex – to your
financial posture.
Sarah Windham is a partner at the
Dixon Hughes Goodman LLP (DHG)
office in Charleston, SC.
She can be reached at
(843) 727-3708 or by email at
sarah.windham@dhgllp.com.
The Katerra and building technology story
High tech modular building will revolutionize
the North American AEC industry within
three years, consultants assert
Florida Construction News staff writer
Is a technological/business model
revolution about to overtake Florida's
construction industry – yet we hardly
see it coming?
If building materials consultant
Mark Mitchell’s perception is correct,
Katerra, a new high-tech start-up
combining technology, design, distri-
bution and modular (factory) con-
struction will soon reshape the
industry in manners similar to the
way Uber tore apart the local taxi in-
dustry and Craigslist decimated local
newspapers. “In its own way, I predict this will
have as much effect on residential
and commercial new construction,”
writes Mitchell, based in Boulder,
CO. “Lack of efficiency will make the
way (building products) manufactur-
ers do business now irrelevant in
new construction. They may be rele-
gated to competing with each other
in the repair/remodel, big box and
smaller high-end custom construc-
tion.” Of course modular building has
been around for decades, serving
several niche markets in Florida and
elsewhere. The difference this time
is the integration on a multinational
level between technology, design,
manufacturing and delivery – and
massive capital funding for the new
enterprises. Currently leading the pack,
Katerra’s company headquarters are
the Sand Hill Rd. tech venture capi-
talist epicenter in Menlo Park, CA,
with a construction office in Scotts-
dale, AZ and design office in Seattle.
It also is building a Cross Laminated
Timber (CLT) factory in Spokane, WA.
The start-up purportedly has a val-
uation of about $2.5 billion, accord-
ing to PitchBook Data. Early
investors have raised as much as
$244 million – and published reports
indicate the company is preparing to
raise another $200 million this year,
at least.
Currently the organization,
founded in 2015, has projects under-
way in California, Oregon, Washing-
ton, Idaho and Nevada, but there is
little stopping it from expanding its
scope and geographical range.
Katerra says it has about 1,000 em-
ployees in four countries and already
is among the top 25 general contrac-
tors in the U.S.
“Katerra is bringing fresh minds
and tools to the world of architecture
and construction,” the company says
in its corporate outline. “We are ap-
plying systems approaches to re-
move unnecessary time and costs
from building development, design,
and construction.”
“With the latest technology at our
fingertips, efficiency no longer has to
come at the expense of quality or
sustainability. Led by a team that
combines expertise from the most
groundbreaking technology, design,
manufacturing, and construction
companies, we are transforming
how buildings and spaces come to
life.” “The way we think about a con-
struction site is to turn it into an as-
sembly site and make it a factory like
we used to do at Flextronics,” CEO
Michael Marks said in a published re-
port. (Marks led Flextronics in the
1990s and early 2000s.) “The thing
that is so messed up in the real es-
tate business is how many different
parties are involved in getting any-
thing done.”
In his weekly newsletter, Mitchell
– who provides marketing consul-
tancy services to a diversity of build-
ing product manufacturers – says the
coming construction technology/
manufacturing revolution envisaged
by Katerra will take place when the
company approaches “builders and
developers with an offer they can’t
Florida Construction News — MARCH 2018 – 11