Copyright: TheaDesign
By Matthew Berger, VP of Tax, Student Housing
Matthew M. Berger is Vice President of Tax and Vice President of Student Housing. In his tax role, Matthew represents the interests of the multifamily industry before Congress and federal agencies on tax issues.
As Washington eyes the end of the year, a tax bill could come together in December or early 2024 if both an agreement can be reached on tax provisions and a suitable vehicle can be found. Lawmakers could attach a tax title to legislation providing supplemental funding to Israel and Russia, a FAA reauthorization bill, or legislation to complete the FY2024 appropriations process.
Near-Term Provisions in Play
As Congress looks to moving tax legislation two business provisions affecting interest deductibility and bonus depreciation could be included to benefit the multifamily industry. At the same time, Democrats could look to add housing affordability tax incentives and, in particular, those expanding and enhancing the Low-Income Housing Tax Credit. NMHC would also strongly support the inclusion of proposals to establish a Middle Income Housing Tax Credit and a tax credit to convert underutilized commercial buildings into workforce multifamily housing. Each of these housing tax proposals would spur development and help address the nation’s housing affordability crisis.
Two business provisions on the table that could benefit the multifamily industry impact:
- Deductibility of Business Interest: Under current law, taxpayers may deduct business interest subject to a limitation of 30 percent of earnings before interest and taxes (EBIT). Prior to 2022, the limitation was 30 percent of interest, taxes, depreciation, and amortization (EBITDA). Multifamily firms are able to elect out interest deductibility limits (and fully deduct business interest) so long as they depreciate buildings over 30 years as opposed to 27.5 years. A provision could extend the 30 percent of EBITDA limitation through 2025 without affecting the option for real estate businesses to opt out of the limitation in exchange for the somewhat longer depreciation period.
- Bonus Depreciation: Congress may act to extend 100 percent bonus depreciation through 2025 to enable taxpayers to deduct the full cost of certain capital investments with a class life of 20 years or less (e.g., equipment and machinery) included in multifamily buildings. Under current law, 80, 60, 40, and 20 percent bonus depreciation are available in 2023, 2024, 2025, and 2026, respectively.
Key Tax Policies Expiring in 2025
While beneficial tax legislation is possible in the near term, the multifamily industry is already gearing up to push for the extension of critical tax policies expiring at the end of 2025. That’s when provisions in the Tax Cuts and Jobs Act that benefit individuals and the pass-through entities and REITs that dominate the multifamily industry expire. This includes reduced marginal income tax rates and the 20 percent tax deduction for qualifying pass-through income. At the same time, the estate tax exemption will be reduced by 50 percent.
While Congress is unlikely to address these provisions until 2025, NMHC is already beginning to educate members of Congress about the critical role today’s tax policy plays in spurring investment in multifamily housing. Finally, we will also be guarding against perennial revenue-raising proposals lawmakers could seek to use to offset the cost of extending today’s tax laws. The multifamily industry is constantly vigilant against proposals to tax carried interest at ordinary income tax rates or to eliminate or limit deferral from like-kind exchanges.
