Business Interest Deductibility
Multifamily developers generally borrow, in many cases as much as two-thirds of total cost, to finance apartment development. Curtailing the current deduction for business interest expenses would greatly increase the cost of debt financing for projects and inhibit development activity when the nation is suffering from a shortage of apartment homes. While 2017 tax reform legislation generally imposed limits on the deductibility of business interest, it exempted certain multifamily small businesses with average annual gross receipts of $29 million or less in the previous three years. Multifamily real estate firms may also elect out of limitations on interest deductibility so long as they agree to depreciate real property over longer periods.