Enacting tax reform by the end of 2017 remains a key priority for both the Trump Administration and Congressional Republicans. While a detailed plan has not yet emerged, Treasury Secretary Steven Mnuchin said on August 31 that a proposal could be released in the next several weeks. NMHC has prepared a comprehensive memo outlining all the real estate issues currently in play, including the curtailment of business interest deductibility and like-kind exchanges.
The plan is for the House Ways and Means and Senate Finance Committees to play a large role in determining legislative specifics. Prior to the August recess, the Administration and the Congressional Republican leadership released a joint statement that expressed support for reducing tax rates on families and businesses (and providing for a lower rate for small businesses); providing unprecedented capital expensing; and setting aside border adjustability.
As policymakers deliberate, NMHC/NAA continue to press for the multifamily industry’s key priorities, including our view 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;
- Maintain the current law estate tax; and
- Repeal or reform the Foreign Investment in Real Property Tax Act to promote investment in the domestic apartment industry.
To pass tax reform legislation by the end of the 2017 or the early part of 2018, Congress must address several policy and procedural challenges. On the policy front, full-scale, comprehensive tax reform is difficult to enact given that it has the potential to harm many industries and remove prized tax provisions. While many support reducing tax rates and increasing competitiveness, once a bill is released those industries that will be negatively impacted are likely to oppose it aggressively.
On the procedural front, Republicans have a narrow 52-48 majority in the Senate, a chamber where it normally takes 60 votes to move a bill. Republicans would like to use the reconciliation process that would enable them to pass a bill with 51 votes. To trigger reconciliation, however, Republicans must pass and conference a budget resolution through both the House and Senate. The House would likely move a budget resolution in September, but it is currently the subject of considerable date. In its present form, the House budget resolution would reduce entitlement spending by $203 billion over 10 years, an amount viewed as too high by moderate Republicans. It is unclear if the House can pass the resolution. Meanwhile, the Senate has not even marked up its own version.
Passing a budget resolution and working through policy and challenges is not an easy process and could take time to address. However, these obstacles are not insurmountable and the industry must continue to take reform extremely seriously. NMHC/NAA are discussing our priorities with members of Congress on a daily basis to ensure they understand how critical it is to address the multifamily industry’s needs appropriately.
- 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