How CRE Owners Can Prepare for Estate and Gift Tax Changes

How Multifamily Property Owners Can Prepare for Impending Estate and Gift Tax Changes

Multifamily property owners and investors are no strangers to navigating a constantly evolving economic environment, changing regulations and shifting market demands. Adapting to the upcoming sunsetting of temporary increases in estate and gift tax exemptions is no different. However, it’s not something that can be pushed out to be dealt with down the road. For most multifamily investors, the time to take action is now.

To help you prepare, CBIZ valuation and appraisal experts Michael Fritton, Managing Director, and Mark Moore, Director of Valuation Services, answered five key questions about the upcoming tax exemption changes, the implications for multifamily property owners and the next steps they’re recommending for clients.

Q: What is the current federal estate and gift tax exemption — and what’s changing?

A: In 2018, the Tax Cuts and Jobs Act (TCJA) created many tax changes for corporations and individuals. One change was a significant increase in the maximum exemption amounts for estate and gift taxes. The current exemptions are $13.61 million per individual and $27.22 million per couple. When it passed, the TCJA included a Dec. 31, 2025 sunset date for these exemption amounts. Barring the unlikely scenario of Congress extending the provisions, the tax exemption amounts will revert to 2017 levels, adjusted for inflation. In other words, as of 2026, the maximum estate and gift tax exemptions will be roughly half what they are today.

Q. Why should multifamily property owners prioritize gift and estate planning in 2024?

A: Multifamily real estate investing remains an appealing strategy for building long-term wealth. With market demand high, multifamily properties offer a relatively reliable stream of income and viable opportunities for asset appreciation. In recent years, property owners and investors have built substantial multifamily portfolios and net worth. For many, their expanding property portfolios and total net worth make taking advantage of the current gift tax exemptions imperative.

When you factor in the “Great Wealth Transfer” that’s occurring as Baby Boomers plan for retirement and pass their wealth on to the next generation, 2024 is a critical year to revisit or establish a strategy that optimizes the available tax advantages and ensures assets are appropriately distributed.

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Q. What are the advantages of taking action now?

A: By leveraging the current federal tax exemption amounts before they sunset on Dec. 31, 2025, multifamily property owners and investors can potentially save millions in taxes while safeguarding their legacy and assets for their heirs.

In addition to the looming 2025 deadline, current property values make taking action today a smart financial move. With today’s commercial property values lower compared to recent years, owners and investors can claim a lower value for transfer purposes. Then, because multifamily property transfers typically occur in partnership or trust vehicles that enable the investor to gift a percentage of the asset, additional tax discounts on the value of the interest are often available. As a result, less of the available gift exemption amount is utilized, allowing the property owner or investor to transfer more wealth during their lifetime.

Q: What potential obstacles do you see that could prevent multifamily property owners from maximizing the exemptions before the December 2025 deadline?

A: The transfer of an asset does involve transferring the control of that asset — it’s a major decision. While few of us like to think about estate planning, we want to leave a legacy for our loved ones. The good news is that expert advisors can provide guidance on how to structure the transfer of assets so the advantages are maximized while also addressing matters of control. With the wide range of trust vehicles available, the structures can be personalized to fit your unique situations and needs. Your advisor can also help identify the assets that are appropriate to include, taking current property valuations, projected growth in value and cash flows into account.

Right now, one of the biggest potential obstacles is the limited time between now and December 2025. It takes time to explore the options available, identify assets to include and determine the structure for the transfer. As part of the process, you’ll need to engage specialized resources: attorneys, valuation experts and appraisers. We’re already seeing a backlog among many of these required resources, and the wait times will only get longer as the deadline nears.

Q: What’s the first step multifamily property owners should take?

A: Multifamily real estate investments offer numerous benefits, including tax advantages, predictable income streams and appreciation potential. To maximize the return on investment and create a legacy of financial security, think of estate planning as a critical aspect of multifamily property ownership. Engage trusted advisors, tax experts and valuation specialists now to ensure you’re on track to optimize the available federal exemptions by year-end 2025.

The dedicated commercial real estate team at CBIZ can help you identify properties to transfer, explore the different transfer vehicles, determine appropriate valuations and navigate the process from start to finish. Connect with a member of our team and gain access to more resources here.

This article includes input from Michael Fritton, Managing Director, and Mark Moore, Director of Valuation Services. By utilizing Mike’s and Mark’s expertise in complex real estate transactions, our team can help you prepare for changing regulations.

How Multifamily Property Owners Can Prepare for Impending Estate and Gift Tax Changeshttps://www.cbiz.com/Portals/0/Images/GettyImages-1292447352_medium.jpg?ver=A50gOe8y2SOImxHC7aJoiw%3d%3dhttps://www.cbiz.com/Portals/0/Images/GettyImages-1292447352_medium.jpg?ver=A50gOe8y2SOImxHC7aJoiw%3d%3d2024-03-26T17:00:00-05:00

Multifamily property owners and investors are no strangers to navigating a constantly evolving economic environment, changing regulations and shifting market demands. Adapting to the upcoming sunsetting of temporary increases in estate and gift tax exemptions is no different.

Planning & Tax MinimizationReal EstateYes