As part of ongoing efforts to address expired tax provisions, the House Ways and Means Committee on May 29 approved legislation (H.R. 4718) to make permanent so-called bonus depreciation. The measure allows firms, including multifamily operators, to immediately deduct 50 percent of new equipment purchases as opposed to having to depreciate the entire expense over a period of years. The bonus depreciation legislation now joins other tax extenders awaiting action by the full House.
Specifically, a bill (H.R. 4457) that allows small businesses, including multifamily firms, to write off up to $500,000 in qualifying investments in the year of purchase could see floor action in the House as early as the middle of June. The $500,000 expensing limit would be phased down if overall investment costs exceed $2 million, limiting the proposal to smaller multifamily operators. Without legislation, in 2014 small businesses can immediately deduct just $25,000 in investment costs. Notably, both the bonus depreciation and small business expensing measures seek to make these tax policies permanent.
The “Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act” (S. 2260) is pending in the Senate and seeks to renew expired tax provisions for two years through 2015. The full Senate, however, has yet to break a logjam and pass the EXPIRE Act due to a disagreement between Democrats and Republicans over which amendments may be considered.
Ultimately, current divisions between the House and Senate over whether expiring tax provisions should be extended permanently, instead of on a short-term basis, is likely to delay final legislation until after the November elections.
Please see the following multifamily related details of the EXPIRE Act for additional background:
- Flat 9 percent LIHTC and 4 percent rate for acquisitions: Due to low interest rates, the current 9 percent LIHTC is actually set at a 7.58 percent rate, reducing its value by nearly 16 percent. Accordingly, the proposal extends the minimum 9 percent rate for newly constructed non-Federally subsidized buildings for which an LIHTC allocation was made prior to January 1, 2016. The proposal also calls for a 4 percent rate for LIHTC acquisitions advocated for by NMHC/NAA which, like the flat 9 percent rate, would make the credit more valuable because low interest rates are diminishing its value.
- Bonus Depreciation: While business property must be depreciated over a number of years, so-called bonus depreciation has enabled taxpayers to expense 50 percent of the cost of an investment in the year it was purchased. The provision extends bonus depreciation through 2015 for property with class lives of 20 years or less.
- Small Business Expensing: Under current law, small businesses can expense up to $25,000 in new investments. This amount is reduced as aggregate investments exceed $200,000. The provision restores the law applicable in 2010 through 2013 that allowed small businesses to expense up to $500,000 in qualifying investment subject to a phase out beginning at $2 million in investment.
- Deduction for Energy Efficient Commercial Buildings (Section 179D): The bill includes an extension of the Section 179D energy efficiency tax deduction through 2015. NMHC/NAA had advocated for the extension and also for expanding it to allow for retrofits of multifamily properties, but the expansion was not included due to budget concerns.
- New Energy Efficient Home Credit (Section 45L): Improving the energy efficiency of new residential construction is another cost-effective way to move the United States closer to energy independence. Because the tax credit for new energy efficient homes encourages sustainable and efficient construction methods and helps address the market failure that can occur when the developer or owner of a home does not bear the direct costs of a home’s energy consumption, it should be extended. NMTC: The NMTC provides a tax incentive for qualified equity investments in economically distressed areas and can be used for mixed-use projects. The proposal permits $3.5 billion in new investments for both 2014 and 2015.
- 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