How the New Tariff Proposals Could Impact Real Estate Investors and Business Owners
Recent proposals from former President Trump aim to reintroduce and expand tariffs on imports—particularly from China and on key materials like steel and aluminum. While tariffs are intended to protect American industries and raise revenue, they can have a significant downstream effect on construction costs, supply chains, and ultimately, tax and investment strategies. Here’s what real estate investors and business owners need to know.
What Are Tariffs?
Tariffs are taxes on imported goods, typically paid by U.S. importers. These costs often get passed down the line to businesses and consumers in the form of higher prices.
Key Impacts for Real Estate and Businesses
Rising Construction Costs: Materials like steel, aluminum, and cabinetry could become significantly more expensive. This affects budgets for new developments, renovations, and even maintenance.
Project Delays: Tariff-induced price increases may delay or halt development projects, especially in a high-interest-rate environment.
Squeezed Margins for Businesses: Small businesses reliant on imported inventory face higher costs and tighter profit margins. Price increases may not be fully passed on to consumers.
Tax Strategies to Consider
Tariffs raise costs, but there are ways to respond strategically:
Cost Segregation Studies: Higher construction costs increase your tax basis, which means larger depreciation deductions.
Bonus Depreciation & Section 179: Deduct more of your upfront costs when investing in property improvements or new equipment.
Inventory & Accounting Methods: Consider switching to LIFO (Last-In, First-Out) to reflect rising input costs in your COGS.
R&D and Domestic Production Credits: If you pivot to domestic suppliers or redesign your product or process, you may qualify for valuable tax credits.
Broader Considerations
Supply Chain Adjustments: Businesses are exploring alternative suppliers outside tariffed regions. Be proactive in diversifying sourcing.
Inflation and Interest Rates: Tariffs can contribute to inflation, which may pressure the Fed to raise rates—affecting borrowing and investment decisions.
Opportunities Amid Disruption: Domestic manufacturers and suppliers may benefit. Investors can explore strategic plays in industrial real estate or reshoring-related businesses.
Final Thoughts
Tariffs may reshape the economic environment in the coming year. Real estate investors and business owners should review their budgets, supply chain risks, and tax strategies now. Work closely with your tax professional to identify ways to mitigate the financial impact and seize new opportunities.