interest expense or business interest income and any net
operating loss.
Real property trades or businesses, including rental
property activities that qualify as a trade or business,
may elect out of the interest deduction limitation if that
trade or business uses the alternative depreciation sys-
tem, which generally results in longer, slower deprecia-
tion deductions. Any interest not deductible for any tax
year shall be carried forward indefinitely and treated as
business interest paid or accrued in the succeeding tax
year. An exemption to these rules applies to taxpayers with
average annual 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(DPAD) repealed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(also known as Section 199) is repealed. DPAD was a de-
duction allowed under pre-act rules that allowed contrac-
tors performing new construction or substantial
renovation in the U.S. to claim a deduction of up to nine
percent of taxable income (with certain limitations).
9. Like-kind exchanges
Under the new law, like-kind exchanges are limited to
only exchanges involving real property that is not prima-
rily held for sale. This new limitation applies to ex-
changes completed after Dec. 31, 2017; however, a
transition rule allows like-kind exchange treatment for
any property disposed of in an exchange on or before
Dec. 31, 2017, or for any property received by a taxpayer
in an exchange on or before the same date. This excep-
tion generally allows for like-kind exchanges already in
process to still take advantage of the current like-kind ex-
change rules. This may have an impact to contractors
who have typically exchanged equipment 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 decedents
dying and gifts made after 2017 and before 2026. The bill
also increases the GST exemption to $10 million. This ef-
fectively increases the inflation-adjusted exclusion and
exemption amounts to $11.2 million ($22.4 million for a
married couple) for 2018.
These increased exclusion and exemption amounts
will provide planning opportunities for contractors look-
ing 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 familiarizing
themselves with the finer details of the changes. Loop-
ing in your trusted advisor and CPA is strongly recom-
mended to ensure you are prepared 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. Al Windle • 704.945.2176 • awindle@slk-law.com
The North Carolina Construction News — Winter 2018 — 11