Senators John Thune (R-SD) and Johnny Isakson (R-GA) and Representatives Joe Morelle (D-NY) and Brad Wenstrup (R-OH) introduced the Multifamily Depreciation Parity Act of 2019 to correct a drafting oversight in the Tax Cuts and Jobs Act (TCJA) that requires certain multifamily buildings to be depreciated over 40 years as opposed to the congressionally intended 30 years. NMHC and NAA spearheaded the effort to get this legislation introduced and coordinated a real estate coalition industry support letter signed by 12 real estate groups. As this issue directly impacts our ability to invest in the production and preservation of multifamily units, the multifamily industry is supporting the inclusion of this legislation in any tax package that might move forward this year.
Under the TCJA, multifamily real estate firms may elect out of limitations on interest deductibility so long as they agree to depreciate new property under the Alternative Depreciation System (ADS). The TCJA also reduced the ADS recovery period for multifamily property from 40 years to 30 years. Our view is that congressional intent was to apply this 30-year period to buildings in existence and subject to a 27.5-year depreciation period before enactment of the law, as well as to new property. However, due to a drafting oversight, the law currently states that multifamily property in existence prior to 2018 must be depreciated over 40 years rather than 30 years. Firms able to abide by limits on interest deductibility will continue to depreciate multifamily property over 27.5 years.
Correcting this drafting oversight is paramount for our industry. In fact, owners of multifamily property placed in service prior to 2018 who elect to retain a full deduction of business interest must now take a 31.25 percent reduction in depreciation deductions (rather than the intended 8.33 percent reduction in depreciation deductions). This foregone deduction translates into the loss of funds that would otherwise be available to build new properties and address the nation’s lack of housing supply or upgrade existing properties and ensure they are not lost to obsolescence.
For this reason, the letter asks that Congress address this unintended result and clarify that all multifamily property may be depreciated over 30 years, regardless of the date such property was placed in service, for firms electing out of limits on interest deductibility.
For more information on this issue, please visit our advocacy page.
- 2019 Legislative and Regulatory Advocacy
- IRS Delays Implementation of New Partnership Tax Forms
- Real Estate Industry Multifamily Depreciation Parity Act Letter to House and Senate – December 2019
- Real Estate Group Letter to IRS Regarding New Partnership Tax Forms – November 2019
- Real Estate Industry Urges Congress to Correct Depreciation Oversight in Tax Cuts and Jobs Act Legislation