The House passed a bill on December 3 that would provide a one-year extension, through 2014, of expired tax provisions. Several of the provisions in the Tax Increase Prevention Act of 2014 (H.R. 5771), including those providing incentives for investment, construction of low-income housing, and energy-efficiency, are beneficial to the multifamily industry. The one-year extension of these provisions means they will once again lapse at the end of 2014, forcing Congress to revisit them in 2015.
The Senate has adjourned for the week and will consider the House-passed tax bill next week. It is expected to pass without amendment and be sent to President Obama who has indicated he will sign it into law.
The following represent the provisions in the tax extenders legislation that are most impactful to the multifamily industry:
- 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 2014 for property with class lives of 20 years or less.
- Small Business Expensing: Under current law, small businesses can expense, as opposed to depreciate over a period of years, up to $25,000 in new investments. This amount is reduced as aggregate investments exceed $200,000. For property placed into service in 2014, 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.
- Flat 9 percent Low-Income Housing Tax Credit (LIHTC): Due to low interest rates, the current 9 percent LIHTC is actually set at a 7.51 percent rate, reducing its value by nearly 17 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, 2015. Unfortunately, the provision does not include a minimum 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.
- Deduction for Energy Efficient Commercial Buildings: The bill includes an extension of the energy efficient commercial building tax deduction through 2014. This provision provides a $1.80 per square foot tax deduction for properties that exceed the efficiency standards set out in the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) Standard 90.1 by 50 percent. 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: Some low-rise multifamily properties (three stories or less) may qualify for a $2,000 per unit tax credit for new residences that achieve a 50 percent energy savings for heating and cooling over the 2006 International Energy Conservation Code (IECC) and supplements. This incentive is renewed through 2014.
- New Markets Tax Credit (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 2014.