Exit Tax Relief

Exit Tax Relief

NMHC Position

NMHC/NAA support efforts to enact legislation to provide apartment owners with “exit tax" relief from depreciation recap-ture taxes when the owners agree to sell their property to new owners who agree to invest new capital in the property and to preserve the property as affordable housing.  Such a change would help America preserve its dwindling supply of af-fordable housing at a minimal revenue cost to the federal government.  

Background

In the past, the federal government used a number of tax and other incentives to encourage private investment in affordable housing.  These initiatives helped address housing shortages by supporting the development of affordable rental housing for millions of lower-income American families.
 
Unfortunately, our current tax law discourages long-term owners from continuing to invest in these properties or selling them to entities that are interested in operating them as affordable housing. 

After decades of operations, many of these owners have a very low tax basis in their properties.  If they were to sell them, they would have to pay large depreciation recapture taxes; in some cases, the tax liability may actually exceed the sales value of the property.  To avoid this huge tax bill, many current owners will not only avoid selling their properties, but they will also be reluctant to make additional capital investments in properties with little value.  The result is deteriorating properties that are lost as safe, affordable housing. 

The other alternative is for the long-time owners to sell their properties to an entity that is able to pay a large enough sales price to cover the recapture taxes.  To make their investment pay off, however, the new owner will likely convert the property to higher, market-rate rents, meaning a loss of our nation's affordable housing stock.

Therefore, either scenario can have the same result: The possible loss of hundreds of thousands of affordable housing units.  Enacting "exit tax" relief will remove the disincentives that discourage owners from selling these properties to enti-ties that can retain them as affordable housing.

Relevant Committees

Senate Finance
House Ways and Means
Joint Committee on Taxation

Key Legislative, Regulatory and Court Action 

  • H.R. 2887:  The Affordable Housing Preservation Tax Relief Act of 2009
    • Introduced June 16, 2009
    • Sponsors:  Artur Davis (D-AL) and Geoff Davis (R-KY)
    • Bill was referred to the House Ways and Means Committee.  No further action has been taken.

Contact Information

Matthew Berger
Vice President of Tax
NAA/NMHC Joint Legislative Program
(202) 974-2362
mberger@nmhc.org