NMHC/NAA provided Treasury and the Internal Revenue Service (IRS) with comments on proposed regulations regarding the new 20 percent deduction for qualifying income of pass-through businesses enacted as part of the Tax Cuts and Jobs Act. Effective through 2025, the deduction reduces the top tax rate applicable to qualifying multifamily income to 29.6 percent from 37 percent.
The apartment industry asked the government to allow taxpayers to recognize the full value of like-kind exchanges and other types of transactions commonly used in the real estate industry. As previously reported, the proposed regulations reduce the unadjusted basis following transactions and potentially limit a taxpayer’s pass-through deduction. Examples of pass-through businesses are sole proprietorships, partnerships, S corporations, estates and trusts.
NMHC/NAA continue to call on the government to clarify that REIT dividends held as part of a mutual fund (as opposed to those derived from directly held REIT stock) qualify for the 20 percent deduction.
Finally, the NMHC/NAA comments ask the Treasury Department and IRS to revisit aggregation rules. These proposed regulations allow taxpayers to aggregate qualifying business activities into a single trade or business if several conditions can be met. Unfortunately, the rules will, in some cases, make it challenging for real estate activities to be aggregated. The apartment industry is proposing alternative rules that will allow taxpayers to group legitimate real estate activities.
Apart from the recommendations in the industry letter, the regulations generally appear favorable to the multifamily industry and enable owners and developers to qualify for the deduction. The regulations clarify that many so-called Specified Services – which could have potentially excluded multifamily operations – do not appear to have an adverse impact.
NMHC/NAA have developed a list of FAQs to highlight the mechanics of the deduction and key issues of concern.
- 2019 Legislative and Regulatory Advocacy
- Bipartisan Multifamily Depreciation Bill Introduced
- 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