On December 16, the Senate cleared a one-year extension, through 2014, of expired tax provisions, which represents a win for NMHC/NAA on behalf of the multifamily industry. Specifically, we advocated throughout the year for several provisions in the Tax Increase Prevention Act of 2014 (H.R. 5771), including those providing incentives for investment, construction of low-income housing, and energy-efficiency, that will be beneficial to our industry.
The extension of the provisions means they will lapse again at the end of 2014, forcing Congress to revisit them next year. We will work to renew these incentives for 2015 along with our efforts to ensure that any movement toward comprehensive tax reform promotes economic growth and investment in rental housing - without unfairly burdening apartment owners and renters relative to other asset classes.
The following represent the provisions in the tax extenders legislation that are most impactful to the multifamily industry:
- Bonus Depreciation: While business property must be depreciated over a number of years, so-called bonus depreciation has enabled taxpayers to expense 50 percent of the cost of an investment in the year it was purchased. The provision extends bonus depreciation through 2014 for property with class lives of 20 years or less.
- Small Business Expensing: Under current law, small businesses can expense,
as opposed to depreciate over a period of years, up to $25,000 in new
investments. This amount is reduced as aggregate investments exceed
$200,000. For property placed into service in 2014, the provision
restores the law applicable in 2010 through 2013 that allowed small businesses
to expense up to $500,000 in qualifying investment subject to a phase out beginning
at $2 million in investment.
- Flat 9 percent Low-Income Housing Tax Credit (LIHTC): Due to low interest rates, the
current 9 percent LIHTC is actually set at a 7.51 percent rate, reducing its
value by nearly 17 percent. Accordingly, the proposal extends the minimum 9
percent rate for newly constructed non-Federally subsidized buildings for which
an LIHTC allocation was made prior to January
Unfortunately, the provision does not include a minimum 4 percent rate for
LIHTC acquisitions advocated for by NMHC/NAA which, like the flat 9 percent
rate, would make the credit more valuable because low interest rates are
diminishing its value.
- Deduction for Energy Efficient Commercial Buildings: The bill includes an extension of the energy efficient commercial building tax deduction through 2014. This provision provides a $1.80 per square foot tax deduction for properties that exceed the efficiency standards set out in the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) Standard 90.1 by 50 percent. NMHC/NAA had advocated for the extension and also for expanding it to allow for retrofits of multifamily properties, but the expansion was not included due to budget concerns.
- New Energy Efficient Home Credit: Some low-rise multifamily properties (three stories or less) may qualify for a $2,000 per unit tax credit for new residences that achieve a 50 percent energy savings for heating and cooling over the 2006 International Energy Conservation Code (IECC) and supplements. This incentive is renewed through 2014.
- New Markets Tax Credit (NMTC): The NMTC provides a tax incentive for qualified equity investments in economically distressed areas and can be used for mixed-use projects. The proposal permits $3.5 billion in new investments for 2014.