Category: Tax Reform Implementation

Tax Technical Corrections Draft Bill Released by Outgoing House Ways and Means Chair; New Chair Plans Hearings on Tax Overhaul’s Impact

Posted on by Trey Jackson

Outgoing House Ways and Means Chairman Kevin Brady (R-TX) released a draft bill on Jan. 2  that includes tax technical corrections to previously enacted legislation, including the Tax Cuts and Jobs Act (TCJA) overhaul. 

Outgoing House Ways and Means Chairman Kevin Brady (R-TX) released a  draft bill  on Jan. 2  that includes tax technical corrections to previously enacted legislation, including the  Tax Cuts and Jobs Act (TCJA)  overhaul. 

  • Rep. Brady stated, “We are releasing this discussion draft of technical corrections with respect to the TCJA and other tax legislation to inform stakeholders and provide the American people an opportunity to submit feedback on the draft provisions.  I look forward to gaining valuable feedback from the public and working with my colleagues in the House and Senate on both sides of the aisle as we continue to provide clarity and certainty for job creators across the country seeking to invest in their workers and our communities.”  
  • The path forward for a technical corrections bill in the 116th Congress will be set by the new Ways and Means Chairman – Rep. Richard Neal (D-MA).
    • Clarification that the recovery period for qualified improvement property is 15 years, or 20 years under the alternative depreciation system (ADS);
    • Clarification that REIT dividends received indirectly by a mutual fund shareholder qualify for the 20% pass-through deduction;
    • Clarification that the Opportunity Zone tax deferral benefit only extends to capital gains – a position that was also incorporated in Treasury’s October proposed regulations.
    • Numerous other clarifications in the Brady draft relate to business interest (§ 163(j)), the pass-through deduction (§ 199A), and the limitation on active losses (§ 461(l).  

The path forward for a technical corrections bill in the 116th Congress will be set by the new Ways and Means Chairman – Rep. Richard Neal (D-MA) . 
  • There is strong bipartisan support for certain technical corrections, such as the 15-year recovery period for qualified improvement property, which could help spur action on a larger tax package.  
  • However, the current draft does not clarify that a business electing out of the new interest limitation is subject to a 30-year ADS recovery period for residential rental property placed in service before 2018.  The issue could be addressed in future versions of the legislation.  
  • Prospects for enactment of technical changes is uncertain, although Ways and Means Chairman Neal stated this week that hearings on tax legislation may be held in early 2019 on the TJCA’s impact and alternative proposals.  Neal also suggested that he will seek agreement with Ranking Member Brady on legislation addressing healthcare, infrastructure and retirement savings. (Wall Street Journal and Tax Notes, Jan. 4)

The Roundtable’s Tax Policy Advisory Committee (TPAC) will review these proposals, which will be a focus during TPAC’s Jan. 30 meeting, held in conjunction with The Roundtable’s State of the Industry Meeting in Washington, DC.  

 

Ways and Means Passes “Tax Reform 2.0” Legislation; House GOP Leaders Plan September Floor Vote

Posted on by Trey Jackson

The House Ways and Means Committee yesterday passed “Tax Reform 2.0” legislation along party lines (21-15) that would make permanent individual and pass-through business tax cuts set to expire at the end of 2025.  House leaders plan a full chamber vote by the end of this month to highlight the GOP’s signature economic policy achievement before the November mid-term elections. (House Ways and Means Committee Mark-up Resourcesand Reuters, Sept. 13)

House Ways and Means Chairman Kevin Brady (R-TX) during the “Tax Reform 2.0” mark-up on Sept. 13.

  • The proposed legislation consists of three bills that would make permanent the individual and pass-through business provisions of the Tax Cuts and Jobs Act (P.L. 115-97); boost employer and individual retirement plans; and allow startup businesses to write off more of their costs.  (Ways and Means summary of Protecting Family and Small Business Tax Cuts Act of 2018 – H.R. 6760)
  • House Ways and Means Chairman Kevin Brady (R-TX) commented on the 2.0 package in an interview with CNBC’s Squawkbox, “We expect to have it ready for a floor vote in September. Locking in the permanence, we think, is fair and it’s pro-growth, creating another million and a half new jobs in the long run.”
  • Despite statements by Brady and House Speaker Paul Ryan (R-WI) about a full House vote this month, attracting support from GOP incumbents in high-tax states may be difficult due to a permanent extension of the new cap on federal deductions for state and local tax deductions (SALT).  The tax reform package is also unlikely to pass the Senate without support from Democrats, although the three House bills may be considered separately.
  • The nonpartisan, congressional Joint Committee on Taxation released a report on Sept. 12 estimates that the House’s second round of tax cuts could cost more than $657 billion over a decade. The costs of making the tax cuts permanent alone would cost about $631 billion, according to the report.

The House will be out of session until Sept. 25, which gives Congress four days to pass government funding by Oct. 1 to avoid a shutdown.  Yesterday, House Appropriations Chairman Rodney Frelinghuysen (R-NJ) announced at a meeting of House and Senate conferees that a deal has been reached on a continuing resolution to keep all of the government funded through at least Dec. 7. 

 

GOP House Leadership Plans Votes on “Tax Reform 2.0” in September; Technical Corrections Bill After Mid-Term Elections

Posted on by Trey Jackson

House Republican leaders aim to vote on “Tax Reform 2.0” legislation in September, followed by a tax technical corrections bill after the November mid-term elections.

House Speaker Paul Ryan (R-WI), right, and House Ways and Means Committee Chairman Kevin Brady (R-TX), left, pledged action on Tax Reform 2.0.  Ryan said taxwriters are compiling a list of “glitches and issues” in the new tax law that could be in a technical corrections bill.  
  • House Ways and Means Committee Chairman Kevin Brady (R-TX) on Tuesday said a second round of tax cuts would include permanently extending individual tax cuts passed last year in the Tax Cuts and Jobs Act.  Twenty-three provisions in the law relating to individual income taxes are currently scheduled to expire at the end of 2025.  (Tax Foundation, January 18)
  • During the July 17 meeting with President Trump and other members of his committee, Brady said, “We anticipate the House voting on this in September and the Senate setting a timetable as well.” After the meeting, Brady added, “We talked about timing and the importance of this. … We’re very well aligned with the White House on 2.0.”  In a televised interview on Wednesday morning, Chairman Brady expanded on his vision for the next major tax bill, which he said would create 1.5 million additional jobs.  (Fox Business, July 18)
  • Such a bill likely would face significant challenges in the Senate, where it would need Democratic support to pass.  Senate Finance Committee Chairman Orrin Hatch (R-UT) supports making the tax cuts permanent and “will continue to work with his colleagues to find a viable path and timing to achieve this goal,” according to a spokeswoman. (Wall Street Journal, July 19)
  • House Speaker Paul Ryan (R-WI) last week also pledged action on Tax Reform 2.0 and added that a technical corrections tax bill would be introduced after the mid-term elections. Ryan said taxwriters are compiling a list of “glitches and issues” in the new tax law that could be corrected in the bill.  Chairman Brady also confirmed the timeline last week, stating, “We’re continuing to develop the technical corrections. It’s always been assumed that we would want to see how Treasury lays out its rules, from everything from pass-throughs to international.”  (CQ, July 12 and Bloomberg Tax, July 13)

Among the technical corrections needed is a drafting mistake that added nearly a quarter-century to the depreciation life for qualified improvement property that has negatively affected commercial real estate development.  Roundtable SVP and Counsel Ryan McCormick explained at a recent NYU tax conference that while Congress intended for qualified improvement property to receive bonus depreciation — setting the recovery period at 15 years — a drafting error put the recovery period at 39 years.  “In addition to conflicting with the clear legislative intent, this result is … antithetical to the basic direction of the underlying bill,” McCormick said.  (Tax Notes, July 2 and Wall Street Journal, July 10 – “Legislative Mistake Causes Some Companies to Postpone Renovations“)

Six-Month Anniversary of Tax Reform Showing Success; House Ways and Means Committee Chairman Kevin Brady Awarded Roundtable’s “Champion of the Economy” Award

Posted on by Trey Jackson

Marking the half-year anniversary of the final passage of the Tax Cuts and Jobs Act (TCJA), House Ways and Means Committee Chairman Kevin Brady (R-TX) joined Speaker Paul Ryan (R-WI) and Secretary of the Treasury Steven Mnuchin in recognizing the law’s benefits to American taxpayers and businesses.  (Video, National Association of Manufacturers, June 21)

  House Ways and Means Committee Chairman Kevin Brady (R-TX), center, was awarded The Real Estate Roundtable’s Champion of the Economy Legislative Leadership Award for his efforts on the Tax Cuts and Jobs Act. 

 

  • “In the six months since we reformed the tax code, we have the fastest growth in investments, new equipment, and technology since 2011. We’ve now seen almost nine out of ten manufacturers increase their investments—investing in their business, workers and their future.”  (Brady remarks, June 21).  Brady also touted tax reform’s results to-date in a Wall Street Journal commentary, “Six Months After Tax Reform, Something Big Is Happening.” 
  • Chairman Brady was awarded The Real Estate Roundtable’s Champion of the Economy Legislative Leadership Award last week for his efforts on the TCJA. 
  • Roundtable President and CEO Jeffrey DeBoer and Roundtable Chair William C. Rudin (Co-Chairman & CEO, Rudin Management Company, Inc.) presented the award during The Roundtable’s 2018 Annual Meeting.  DeBoer said, “Consumer confidence is at a 17-year high. Nearly one million jobs have been created since tax reform passed.  The 3.8 percent unemployment rate has been matched only once since 1969.  Wage growth is accelerating – 2.8 percent year-over-year last month.  GDP growth is widely expected to come in well over 3 percent in the second quarter.  All of this is happening as inflation remains stable near the Fed-targeted rate of 2 percent. In short, the bill has kick started the American economy and extended the economic cycle.”
  • DeBoer added, “Chairman Brady successfully achieved what he set out to achieve—a positive investment environment, greater job growth, and more money in the pockets of American families and businesses.”

In his acceptance comments, Brady noted that the Ways and Means Committee is “continuing to clarify new parts of the tax code, work with Treasury and get technical corrections made.”  Brady also said his goal is to continue encouraging growth and investment.  “Early signs are very encouraging. The best is yet to come.” 

Ways & Means Launches Hearings on Impact of Tax Reforms; Top Treasury Official Outlines Timeline for Implementation Guidance

Posted on by Trey Jackson

The House Ways and Means Committee this week held the first in a series of hearings on how the Tax Cuts and Jobs Act (TCJA) is affecting job creation and the economy five months after its enactment.

House Ways and Means Chairman Kevin Brady (R-TX) in his  opening statement offered a list of favorable economic statistics and projections that he said are attributable to the new law

Treasury Assistant Secretary Sketches Timetable for Regulations Implementing Tax Reform 
Certain provisions of the TCJA of interest to commercial real estate could be addressed in upcoming IRS guidance or in a congressional technical corrections bill.

  • Acting IRS Commissioner David Kautter on May 12 said that Treasury and the IRS hope to complete proposed regulations on section 199A passthrough deduction by mid- to late-July. (Tax Notes, May 15, “Kautter Talks Timelines for TCJA Guidance Projects” and Roundtable Weekly, May 4).
  • Kautter added that the target date for a notice of proposed rulemaking on section 163(j) business interest deduction limitation is late summer or early fall. (Roundtable Weekly, April 6).)
  • Natalie Tucker, legislation tax accountant at the Joint Committee on Taxation, recently  said that the cost-recovery period for qualified improvement property rises to the level of consideration for a “technical correction.”  While Congress was formulating the TCJA, a new category—qualified improvement property—wasn’t assigned a cost-recovery period, and fell to the 39-year period by default, rather than the intended 15-year period.  That was not the intent of Congress and therefore qualifies for inclusion in a technical corrections bill, according to Tucker.  (Bloomberg Law, May 11, “Agreement Reached on Three ‘True’ Technical Corrections”)

Along with TCJA rulemaking and implementation, the legislation’s impact on CRE will be a focus of discussion at The Roundtable’s Annual Business Meeting and Policy Advisory Committee Meetings on June 14-15 in Washington, DC.

New Reports Measure Impact of Tax Reform on Real Estate Investment and CRE’s Impact on National, State Economies

Posted on by Trey Jackson

Tax reform enacted late last year will cause investment in nonresidential structures to increase by an average of more than $23 billion from 2019-2028, and rise nearly $10 billion this year alone, according to new projections released Monday by the Congressional Budget Office (CBO).  (The Budget and Economic Outlook: 2018 to 2028, April 9)

CBO chart: Effects of the 2017 Tax Act on Investment Through Changes in Incentives affecting Nonresidential and Residential Structures. Click to Enlarge— Page 119 of  full CBO Report

The new report isolates and analyzes the impact of recent tax reform legislation on different types of economic activity, including investment in structures. 

Tax reform’s positive impact on nonresidential investment stems from the corporate and individual rate reductions, as well as the new pass-through deduction.  Combined, these changes reduce the user cost of capital.  Cost recovery rules for structures were largely unchanged in the recent tax policy changes.

CBO projects tax reform will have a dampening effect on investment in residential housing: -$9 billion in 2018, and an average of -$13 billion annually from 2019-2028.  These numbers reflect the combined, net effect of a reduction in investment in owner-occupied housing and an increase in investment in rental housing.  Limitations on the deductibility of property taxes and mortgage interest are putting downward pressure on investment in owner-occupied housing.  Rental property investment, in contrast, benefits from the same tax reforms that affect nonresidential investment. 

As a nonpartisan arm of Congress, CBO’s annual economic and budget outlook is widely watched by the private sector for indications of how recent policy changes are affecting the overall economy.

CBO: Trillion Dollar Deficits by 2020

According to the report, borrowing to fund tax cuts and increased spending will also send deficits soaring past $1 trillion in the coming years and increase the overall debt burden to 96 percent of GDP by 2028.  (The Hill, April 9)

Under the  recent $1.3 trillion spending agreement, defense and non-defense spending will increase by nearly $300 billion over the next two years.  (Roundtable Weekly, March 23)

Although economic growth is projected by CBO to rise to 3.3 percent in 2018 – much higher than the 2.6 percent recorded last year – the estimated growth rate will decrease to 2.4 percent in 2019, followed by a drop to an average of just over 1.7 percent for the subsequent eight years of the ten-year budget period.  (The Washington Post, April 10)

Deficits are also forecast to climb dramatically.  CBO anticipates a deficit of $804 billion in 2018 (43 percent higher than it projected just last June, prior to the tax bill and spending agreement).  The amount of debt held by the public will approach 100 percent of GDP over the next ten years, an amount far greater than any period since World War II.  (CNN, April 11)

NAIOP: Building Accounts for 18.0 % of National Economic Activity in 2017

According to the   NAIOP report , combining residential and nonresidential buildings,  as well as infrastructure, the total impact of construction spending (direct, indirect and induced) – accounted for 18.0 percent of all the nation’s economic activity in 2017. 

In related news, a report recently published by the NAIOP Research Foundation shows that commercial real estate in 2017 supported 7.6 million American jobs and contributed $935.1 billion to the nation’s GDP.  (Economic Impacts of Commercial Real Estate, 2018 Edition, NAIOP)

The annual study, authored by economist Stephen S. Fuller, Ph.D, measures the contributions to GDP, salaries and wages generated, and jobs created and supported from the development and operations of commercial real estate – and includes detailed data on commercial real estate development activity in all 50 states. 

According to the study, combining residential and nonresidential buildings (warehouse/industrial, office, retail, health care, entertainment, education, public safety, religious and lodging) – as well as infrastructure for water, sewer, highways and power, the total impact of construction spending (direct, indirect and induced) — accounted for 18.0 percent of all the nation’s economic activity in 2017.

“The importance of commercial development to the U.S. economy is well established, and the industry’s growth is critical to creating new jobs, improving infrastructure, and creating places to work, shop and play,” said Thomas Bisacquino, NAIOP president and CEO.  (NAIOP news release).

CRE as a driving force of national economic growth, as well as tax reform’s impact on the industry, will be a focus of The Roundtable’s April 25, 2018 Spring Meeting, which will feature  Senate Majority Leader Mitch McConnell (R-KY) and other key policymakers.