In 2010, Congress passed a two-year extension, through 2012, of the 2001 and 2003 Bush tax cuts for all taxpayers, lowering tax rates in a number of areas. Because these tax breaks are again set to expire at the end of this year, Congress will soon have to decide whether all of these tax cuts, or just those benefiting taxpayers at certain income levels, should be renewed—and for how long. Given the economy’s uneven recovery, most legislative stakeholders agree that there needs to be some kind of short-term extension of the Bush tax cuts to help prevent the economy from backsliding. Yet because of disagreements between Democrats and Republicans over whether the tax cuts should be renewed for all taxpayers or only for those earning under certain income thresholds, no extension is likely to be enacted until after the November election.

Given that the economy has not yet fully recovered, NMHC/NAA support a one-year extension of the Bush-era tax cuts for all taxpayers. Because many real estate firms are structured as so-called flow-through entities (e.g., partnerships, LLCs, and S Corporations), owners assume tax liability for their share of income received on their individual tax forms.  Therefore, raising taxes on individual taxpayers could have significant business implications on the industry’s ability to effectively construct, rehabilitate and manage apartment properties.

The most significant tax cuts on the table for multifamily firms affect tax rates on ordinary income, capital gains and dividends. However, the expiration of the Bush tax cuts would also drastically alter estate tax rules. The chart below shows today’s current tax rates, as well as the new tax rates, if the Bush tax cuts are left to expire at the end of 2012. Given that a short-term extension could be in the works, the chart also outlines both the Obama Administration and the Republicans’ extension proposals.

For additional information on the expiring Bush-era tax cuts, as well as key tax extenders, and the repercussions for the multifamily industry, visit www.nmhc.org/goto/TaxCuts