On April 26, Senate Finance Committee Ranking Member Ron Wyden (D-OR) introduced the “Cost Recovery Reform and Simplification Act," which would preserve current-law tax depreciation rules for multifamily properties. Specifically, multifamily buildings would continue to be depreciated over 27.5 years and owners would maintain the ability to undertake like-kind exchanges. Tax depreciation rules enable multifamily developers to recover their investment, which promotes apartment construction, economic growth and job creation.
The bill offers a contrast to cost-recovery legislation proposed by former Finance Committee Chairman Max Baucus (D-MT) in November 2013 that would have extended multifamily depreciation periods to 43 years and repealed like-kind exchanges.
NMHC/NAA vigorously opposed the provisions in Senator Baucus’s proposal and we are pleased Senator Wyden has not carried them forward. We support tax reform that ensures depreciation tax rules match the economic life of assets by taking into account natural wear and tear and technological obsolescence.
Although the newly proposed legislation would not modify the depreciation of multifamily properties, it would simplify the depreciation of assets that are not real property. These assets would be placed into one of six pools that best represent the life of the underlying asset. Instead of each asset being depreciated individually as under current law, all the assets in a given pool would be depreciated collectively, representing an effort to simplify cost recovery. For example, although not part of a physical building, sidewalks, sewers and parking lots would be placed into a pool under the proposal.
The bill is not expected to move this Congress, but could form a piece of tax reform legislation that is anticipated in 2017.
- Treasury and IRS Issue Proposed Regulations for Like-Kind Exchanges
- Apartment Industry Seeks Clarification from Treasury Regarding Like-Kind Exchanges
- IRS Extends 1031 Exchange and Opportunity Zone Deadlines
- NMHC Spearheads Industry Request to Extend Like-Kind Exchange Deadline
- Real Estate Letter to Treasury Regarding Like-Kind Exchange - April 2020