The annual debate and process to extend a number of temporary tax provisions of interest to apartment firms is yet again underway. On July 21, the Senate Finance Committee voted 23-3 to renew over 50 expired tax provisions, including important provisions supporting overall incentives to invest in multifamily, as well as specific incentives to support affordable housing and energy-efficiency. Last December Congress retroactively extended these so-called “tax extenders” through 2014, so they must be addressed again this year to enable firms to claim them in 2015.
The next steps for tax extenders are murky. The full Senate could vote to add the package of expired provisions to a long-term highway bill reauthorization pending on the chamber’s floor. However, it is looking increasingly likely that the Senate will defer action until after the August recess.
On the House side, Ways and Means Committee
Chairman Paul Ryan (R-WI) would prefer to make some of the tax extenders
permanent. Thus, a final extenders
package may not drop until well into the fall.
The following tax extenders in the Finance Committee’s bill would impact the multifamily industry most:
- Bonus Depreciation: Bonus depreciation has enabled taxpayers to expense (as opposed to depreciate over a number of years) 50 percent of the cost of a qualifying investment (i.e. property with class lives or 20 years or less) in the year it was purchased. The pending tax extenders package would renew this provision through 2016.
- 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 between 2010 and 2014, small businesses could expense up to $500,000 in qualifying investment subject to a phase out beginning at $2 million in investment. The tax extenders bill would renew and index for inflation these amounts through 2016.
9 percent and 4 percent Low-Income Housing Tax Credit (LIHTC): Due
to low interest rates, the current 9 percent LIHTC is actually set at a
rate, reducing its value by over 16 percent. Accordingly, last year’s tax
extenders package extended the minimum 9 percent rate for newly
constructed non-federally subsidized buildings for which an LIHTC
allocation was made prior to January
In a victory for the multifamily industry, the extenders package renews the minimum 9 percent LIHTC for allocations made prior to 2017. It also establishes a minimum 4 percent LIHTC for the acquisition of existing properties that are not federally subsidized for buildings placed in service after the date of enactment with respect to which credit allocations are made before 2017.
for Energy Efficient Commercial Buildings:
Through 2014, the tax code provided for a $1.80 per square foot tax
deduction for properties that exceed the efficiency standards set out in
the 2001 American Society of Heating, Refrigerating and Air-Conditioning
Engineers (ASHRAE) Standard 90.1 by 50 percent.
The pending extenders package renews the provision through 2016 and resets the ASHRAE standard to 2007 requirements. Additionally, tax-exempt non-profits could allocate the deduction to the entity primarily responsible for designing the property. This week NMHC/NAA sent a letter specifically advocating for this provision.
- New Energy Efficient Home Credit: This tax credit allows some low-rise multifamily properties (three stories or less) to 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 and supplements. The proposed tax extenders package would renew the provision for 2015 and 2016. We also sent a letter supporting this action.
- New Markets Tax Credit (NMTC): The NMTC provides a tax incentive for qualified equity investments in economically distressed areas that can be used for mixed-use projects. The law permitted $3.5 billion in new investments for 2014. The extenders package renews the NMTC through 2016 but also increases annual allocations to $3.94 billion.
- ACTION Coalition Letter to Treasury Regarding Community Development Tax Incentives
- Real Estate Coalition Letter Regarding the Coronavirus State and Local Fiscal Recover Fund (SLFRF) Housing Credit
- Low-Income Housing Tax Credit
- Treasury, IRS Issue Guidance Related to LIHTC Relief Requirements
- NMHC Calls on Treasury to Modify Guidance When Using LIHTC