Industry leaders largely viewed the legislation as a significant win for the industry, which had been burned badly the last time sweeping changes to the tax code were made in the Tax Reform Act of 1986. Not only did executives see this legislative package as securing a number of important victories for the multifamily industry, but, more broadly, it also provided a positive boost to multifamily demand.
Renters are going to have more money-and that’s a good thing for the apartment business-was the big takeaway. Mark Parrell, EVP and CFO of Equity Residential, said that an internal analysis of his company’s rent rolls showed that, despite the company’s heavy concentration in high-cost areas like New York City, the majority of residents stood to benefit from the new tax brackets. Moreover, other changes to the law blunted the benefits of the mortgage interest deduction.
“The playing field between renting and homeownership has really leveled in the wake of tax reform,” he explained.
However, the legislation’s passage doesn’t end Congress’ work on the issue or NMHC’s advocacy on behalf of the industry. Given the size and scope of the law, the bill’s language will have to be clarified in several areas to function as intended. Of particular interest to apartment firms are provisions related to depreciation and the taxation of pass-through entities.
For example, the law allows firms to elect to continue to deduct business interest, but it requires them to extend a building’s depreciation period from 27.5 years to 30 years. Although NMHC believes Congress intended that that provision would apply to both existing and new buildings, the language is ambiguous and could be read to require the remaining life of existing buildings be depreciated over 40 years when owners opt to deduct business interest. NMHC is asking policymakers to affirm that the 30-year depreciation period, which NMHC secured, applies to existing buildings.
Similarly, NMHC is also working to ensure that the bill is correctly interpreted to allow multifamily businesses to fully qualify and receive the benefit of the 20 percent deduction allowed for qualifying income earned by the pass-through entities (e.g., LLCs, partnerships and S Corporations).
Separate from these implementation issues, NMHC is working with lawmakers to extend several tax provisions that expired at the end of 2017. Legislation has been introduced in the Senate (S. 2256) that would renew the Energy-Efficient New Homes Tax Credit and the Energy Efficient Commercial Buildings Deduction through 2018.
- Real Estate Coalition Letter on ADS Tax Reform
- Real Estate Industry Continues to Press for 30-Year Depreciation Period for Multifamily Buildings
- End-Of-Year House Tax Bill Includes Beneficial Provision But Lacks Depreciation Fix
- House Votes to Make Permanent Tax Cuts for Pass-Through Businesses
- Top Lawmakers Meet with NMHC Members at 2018 Fall Meeting