The House passed tax reform legislation that would make dramatic changes to the nation’s tax code on November 16. While largely leaving many provisions of critical importance to the multifamily industry intact, including those impacting interest deductibility, like-kind exchanges, and depreciation, it would make dramatic changes to both the individual and business sides of the tax code. A comparison table can be found here.
First, the House bill reduces marginal income tax rates, enabling multifamily firms to see a portion of business income taxed at 25 percent. Second, the House legislation sets a three-year holding period for carried interest capital gains treatment. Third, the Low-Income Housing Tax Credit (LIHTC) is retained, but private activity bonds (PABs) are eliminated, seriously impacting the 4 percent credit.
At the same time as the House debated its version of tax legislation, the Senate Finance Committee approved its own version. Like its House counterpart, the Senate bill preserves key tax code components, including interest deductibility and like-kind exchanges. However, the Senate language extends the depreciation period of multifamily buildings to 30 years. Initially, the Senate sought a 40-year depreciation period for buildings, but NMHC/NAA were able to secure an amendment offered by Finance Committee Chairman Orrin Hatch (R-UT) to reduce the period to 30 years.
Like the House bill, the Senate measure reduces tax rates on individuals and provides a tax incentive for pass-through business income. Under the proposal, individuals could take a 17.4 percent deduction on a portion of pass-through income.
Notably, these and other tax reductions targeted to individuals would end in 2025. At the same time, corporate tax reductions, including cutting the corporate tax rate to 20 percent, would be permanent. This could lead to a reprisal of the “fiscal cliff” scenario brought on by expiring tax provisions that Congress last addressed at the end of 2012 with respect to Bush-era tax cuts passed in 2001 and 2003.
The full Senate is expected to consider tax reform legislation the week of November 27. If passed, there will be a formal or informal conference to resolve differences between the House and Senate bills.
NMHC/NAA has long supported tax reform that promotes economic growth and investment in rental housing without unfairly burdening apartment owners and renters relative to other asset classes. To this end, the apartment industry believes that any tax reform proposal must:
- Protect Pass-Through Entities from Higher Taxes or Compliance Burdens;
- Ensure Depreciation Rules Avoid Harming Multifamily Real Estate;
- Retain the Full Deductibility of Business Interest;
- Preserve the Ability to Conduct Like-Kind Exchanges;
- Maintain the Current Law Tax Treatment of Carried Interest;
- Preserve and Strengthen the Low-Income Housing Tax Credit; and
- Maintain the Current Law Estate Tax.
- NMHC Outlines Solutions to Address Housing Affordability Crisis
- 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