The annual debate and process to
extend a number of temporary tax provisions of interest to the multifamily
industry continues. But no resolution is likely until later this fall.
Specifically, the House Ways and Means Committee approved legislation on
September 17 to make permanent one of these so-called tax extenders - bonus
depreciation. It allows multifamily firms to expense 50 percent of the cost of
a qualifying investment in the year it was purchased.
The end game for enacting tax extenders remains murky. On the House side, Ways and Means Committee Chairman Paul Ryan (R-WI) has indicated a desire to make permanent a number of tax extenders. Under such a scenario, however, some others may be extended on a shorter-term basis or simply expire.
While the House wants to make certain extenders permanent, the Senate Finance Committee is focused on a two-year package that takes care of extenders for 2015 and 2016. Last December Congress retroactively extended them through 2014. So they must be addressed again this year to allow firms to claim them in 2015.
The following tax extenders 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.
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 House in February voted to make these thresholds permanent
while the Senate Finance Committee’s 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 7.51
percent 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 a LIHTC allocation was made prior
to January 1, 2015.
In a victory for the multifamily industry, the Senate Finance Committee’s 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
Senate Finance Committee’s tax 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.
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 Senate Finance Committee’s tax extenders package
would renew the provision for 2015 and 2016.
- 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 Senate Finance Committee’s tax extenders package renews the NMTC through 2016, but also increases annual allocations to $3.94 billion.