NMHC/NAA are working to address an unintended consequence from last year’s tax reform legislation that could adversely affect owners of existing apartment properties. Specifically, the tax law allows firms to choose whether to deduct business interest, but if they do decide 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 had successfully secured the 30-year depreciation option, via the amendment process, after seeing the 40-year option in the original draft. Unfortunately, the provision’s effective date was changed for reasons unknown following Finance Committee consideration as part of a substitute amendment on the Senate floor when the entire Senate was voting on the bill.
NMHC/NAA are making the case that Congress never intended a 40-year depreciation period for existing buildings that wish to retain a full deduction for business interest. A 40-year depreciation period would unnecessarily disrupt cash flows and increase tax liabilities, reducing the ability of multifamily owners to invest in their assets or develop new properties. That result would be contrary to the goal of the tax reform bill, and we are requesting that it be avoided.
More interest on tax reform and the apartment industry is available here.
- 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