NMHC/NAA sent Treasury Secretary Steven Mnuchin a letter on March 15 asking for clarifications to last year’s tax reform bill. Guidance is necessary in several areas, including those pertaining to depreciation and the new 20 percent tax deduction for pass-throughs.
The apartment industry letter once again calls on the Trump administration to swiftly issue administrative guidance to address an unintended consequence from last year’s tax reform legislation that impacts the depreciation period of existing apartment properties. Specifically, the law was intended to allow firms to choose whether to deduct business interest, but if they were to do so, they must depreciate the property for 30 years instead of 27.5 years.
Unfortunately, the legislative language was incorrectly drafted and could be read to only apply to properties placed in service after 2017. Under that interpretation, existing buildings that opt to deduct business interest would have to be depreciated over 40 years. NMHC/NAA are making the case to policymakers that Congress never intended a 40-year depreciation period for existing buildings that wish to retain a full deduction for business interest.
Additionally, NMHC/NAA are asking the Treasury Department to make several clarifications with respect to the new 20 percent deduction for pass-through entities. Such guidance is vital to ensuring multifamily firms can take full advantage of the incentive. Specifically, we are calling on Treasury to:
- Enable individuals to aggregate qualified business activities for purposes of calculating the deduction at the partner level. This would help ensure entities can focus on their business activities rather than engaging in costly restructuring efforts.
- Clarify that property acquired pursuant to a like-kind exchange will not be disadvantaged in calculating the 20 percent deduction.
- Allow REIT dividends held through mutual funds to fully qualify for the 20 percent deduction. Approximately half of REIT shares are held in mutual fund portfolios.
Finally, the multifamily industry asked the Treasury Department to clarify that a taxpayer may use any reasonable allocation method to deduct business interest attributable to a real property trade or business and that debt to capitalize such enterprises is fully deductible. Under the new law, multifamily firms may elect to retain the full deductibility of business interest, and NMHC/NAA are working to ensure there are no disruptions to the industry.
- Congress Fixes Alternative Depreciation System Issue for Multifamily
- In a Win for the Industry, Final Pass-Through Regulations Make Important Corrections
- End-Of-Year House Tax Bill Includes Beneficial Provision But Lacks Depreciation Fix
- Treasury and IRS Issue Proposed Expensing Regulations
- Apartment Industry Statement for Senate Finance Committee Hearing, Early Impressions of the New Tax Law