The tax law gave a last-minute windfall to commercial property owners such as President Donald Trump. But regulations proposed by the Internal Revenue Service could diminish the benefit.

Under the proposals, the agency’s rules would penalize real estate investors when they make like-kind exchanges -- a common practice used to defer taxes by buying a building with the profits gained from the sale of another property.

If the regulations become finalized, developers could wind up surrendering tens of millions of dollars annually that they would have saved on their tax bills.

It’s a setback for the real estate industry, whose members cheered when lawmakers added a provision days before the tax bill passed that effectively allowed owners of real estate businesses to tap a tax break created for pass-through businesses such as partnerships. The 20 percent deduction was extended to firms with large capital investments like buildings, but few employees.

Some Democrats slammed the provision as a giveaway to the wealthy and pointed out that several members of the administration, including Trump and his son-in-law Jared Kushner, whose family has extensive real estate holdings, would benefit from the change. Trump’s financial disclosures show he’s used an array of pass-through businesses, including in his real estate ventures, and many of his most lucrative businesses generate income from rents and leases.

The IRS is responsible for issuing regulations clarifying how some of the 2017 tax law’s complex provisions should be interpreted and implemented. The agency often meets with industry members to take their views into account before coming out with its proposals. In a surprise to the real estate industry, the rules the IRS published in August were far more onerous than what had been considered a worst-case scenario for like-kind exchanges.

“I don’t think anybody saw it coming,” said Steven Schneider, a tax attorney at Baker McKenzie who works with commercial real estate developers.

The rules reflect how the regulation writers interpreted the text of the law, but they’ll consider comments they’re receiving on the issue, Treasury Department attorney-adviser Audrey Ellis said at an American Bar Association panel in Atlanta last week.

A spokesman for the IRS declined to comment.

Typically, when investors sell properties for cash, they owe capital gains taxes on the increase in the value of the property. But if they quickly reinvest the money in another property, the taxes are deferred.

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