Category: Tax Policy

Bipartisan Legislation to Improve REITs’ Flexibility and Competitiveness Gains Traction in the House

Posted on by Abigail Grenadier

A bill to increase the limit on the amount of assets a REIT can own through a fully taxable subsidiary is gaining momentum in the House. The bipartisan measure has picked up 18 additional cosponsors from the tax-writing Ways and Means Committee since its introduction in late August by Representatives Mike Kelly (R-PA) and Brian Higgins (D-NY). (Legislative text of H.R. 5275)

Taxable REIT Subsidiaries

  • In 1999, Congress authorized REITs to create taxable subsidiaries (C corporations) that can engage in activities not otherwise allowed at the REIT level. Common activities undertaken by taxable REIT subsidiaries (TRSs) include services such as landscaping, cleaning, concierge, childcare, and catering, among others. As professional real estate management evolved, the change was necessary to ensure REITs could compete with other full-service real estate businesses.
  • H.R. 5275 would raise the limit on a REIT’s assets attributable to its taxable subsidiary from 20 to 25 percent. The legislation would not change the longstanding REIT income rules requiring that at least 75 percent of the REIT’s total income come from sources like real property rents and interest from real estate mortgages. Similarly, the legislation would not change the REIT asset test, which requires that at least 75 percent of the value of the REIT’s assets consist of real estate, cash, cash items, and government securities.
  • The Roundtable supports the legislation to raise the TRS limitation. The issue is also a tax priority for Nareit, which is leading the outreach effort on Capitol Hill. The current 20 percent limit has created particular challenges for REITs seeking to expand and acquire assets outside the United States, such as digital infrastructure. Raising the threshold to 25 percent would restore the limit to its prior level and allow U.S.-based businesses to continue growing in competitive foreign markets.

The Roundtable and its Tax Policy Advisory Committee (TPAC) will continue working closely with Nareit and other industry partners in support of H.R. 5275 as deliberations continue on tax legislation.

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Taxation of Unrealized Gains is Focus of Senate Democratic Bill and Supreme Court Case

Posted on by Abigail Grenadier

Senate Finance Committee Chairman Ron Wyden (D-OR), above, and 15 of his Senate colleagues recently introduced the Billionaires Income Tax Act (S.3367), which would tax the appreciation of wealthy individuals’ assets. On Tuesday, the Supreme Court heard oral arguments in Moore v. United States, a case challenging the federal government’s authority to tax unrealized gains under the 16th Amendment.

Billionaires Income Tax Act (BITA)

  • Under BITA, tradable, liquid assets would be marked-to-market and taxed annually on their appreciation, while illiquid assets would be subject to a “deferral recapture” tax when sold—or if certain other currently nontaxable events occur, such as death, a transfer to a trust, or a like-kind exchange. (One-page summary; section-by-section summary). (CQ, Nov. 30)
  • As drafted, the bill would apply to taxpayers with more than $100 million in annual income or more than $1 billion in assets for at least three consecutive years. (Tax Notes, Nov. 30).
  • The legislation is not limited to future appreciation of assets. It would reach back in time and apply the tax to accumulated, unrealized gains at the time of enactment.  The tax on built-in gains could be paid over a five-year period. Mark-to-market losses could be carried back for three years and applied against taxable market-to-market gains.
  • The appreciation of partnership assets (including built-in gains) and gains or losses from partnership transactions would flow through and taken into account at the partner level.
  • Related legislation was introduced in the House by Reps. Steve Cohen (D-TN) and Don Beyer (D-VA). 

Roundtable Position and Outlook

  • Real Estate Roundtable President and CEO Jeffrey DeBoer said, “Taxes rarely remain targeted, and like the income tax, this targeted proposal could be revised and expanded over time to apply to everyone. Moreover, taxing unrealized gains would upend over 100 years of federal taxation, require an unprecedented IRS intrusion into household finances, and create unknown and potentially unintended consequences at a time of economic uncertainty. Deferring the taxation of gains until an asset is sold supports entrepreneurs while encouraging the type of patient, long-term investing and productive risk-taking that drives our economy forward.”
  • In the last Congress, efforts to enact a mark-to-market regime were unsuccessful when they ran into resistance from moderate Democrats. Sen. Wyden (D-OR) acknowledged that his bill, which lacks bipartisan support, would not be part of any year-end tax legislation. (CQ, Nov. 30)

Moore v. United States

  • On Tuesday, the Supreme Court heard oral arguments in Moore v. United States, which challenges the federal government’s constitutional authority to tax unrealized income.
  • The petitioners in Moore argue that the mandatory repatriation tax in the Tax Cuts and Jobs Act exceeds Congress’s authority under the 16th Amendment to lay and collect taxes on incomes. They argue that because the tax is based on the accumulated, undistributed earnings of a foreign corporation, there is no income realization event for the Moores, who are a non-controlling minority shareholder of the corporation. (Roundtable Weekly, Oct.13)
  • Depending on the outcome and the scope of the decision, the Moore case could have implications for other forms of taxing unrealized gains, such as the appreciated value of real estate and other assets directly owned by a taxpayer.

A majority of the justices signaled they are hesitant to weigh into the broader debate of how to define income for tax purposes. A decision in Moore is not expected until June 2024. (USA Today and PoliticoPro, Dec. 5 | Tax Foundation, Aug. 30)

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New Analysis Highlights Importance of Like-Kind Exchanges in Current Market Environment

Posted on by Abigail Grenadier

A new analysis by Marcus & Millichap demonstrates how like-kind exchanges are fundamental to the health and financing of the commercial real estate industry, particularly during market corrections and liquidity shortages. (Marcus & Millichap – The Importance of Like-Kind Exchanges During Periods of Reduced Commercial Real Estate Market Liquidity, 2023).

Key Findings

  • Commercial real estate transaction volume is down, but like-kind exchanges are up.  Despite a general decline in commercial real estate transactions, the number of 1031 exchanges initiated has increased nearly 15% from 17,467 in the first half of 2019 to 20,070 in the first half of 2023.
  • The analysis attributes the general decline in commercial real estate transactions in the first half of 2023 to the rise in interest rates, stricter lender underwriting, a diminished economic outlook, and a broad spectrum of geopolitical challenges.
  • “The 15% rise in the number of exchanges initiated, when commercial real estate transaction count fell by 22.1%, underscores the importance of like-kind exchanges in periods of reduced commercial real estate market activity.” (Marcus & Millichap)
  • The liquidity generated through LKEs serves as a deterrent against commercial property defaults, consequently reducing risks in the banking and financial systems that could otherwise pose a threat to the broader economy.
  • The Marcus & Millichap analysis draws on data collected by the largest like-kind exchange qualified intermediaries in the country and aggregated by the Federation of Exchange Accommodators, a member of The Real Estate Roundtable’s President’s Council.

The Roundtable’s Tax Policy Advisory Committee (TPAC) will continue working to raise awareness of the role that like-kind exchanges play in supporting the health of the US economy and the stability of real estate markets.

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Supreme Court Case Challenges Federal Taxation of Unrealized Income

Posted on by Abigail Grenadier
The Supreme Court

This week, the Supreme Court announced it will hear oral arguments on Dec. 5 in a case—Moore v. United States—challenging the federal government’s right to tax unrealized gains. (PoliticoPro, Oct. 12)

Moore Consequences

  • The question raised by the petitioners in Moore, and granted certiorari by the Supreme Court in June, is whether the 16th Amendment authorizes Congress to tax unrealized sums without apportionment among the states.

  • Specifically, the case involves a Washington state couple with an interest in an India-based corporation who are challenging a 2017 mandatory repatriation tax on foreign earnings as an unconstitutional levy on unrealized gains.

  • Outside legal and tax commentary and analysis have suggested the case could have far-reaching consequences for both the existing tax code and pending legislative proposals, depending on how the decision is drafted. 

  • A recent report from the Urban-Brookings Tax Policy Center report estimates that a ruling in favor of the petitioners could result in tax revenue losses exceeding $100 billion annually. Estimates of revenue losses from the Tax Foundation range as low as $3.5 billion and as high as $5.7 trillion in the unlikely event the Supreme Court were to strike down taxes on all undistributed business earnings, whether earned domestically or from foreign sources.

Policy Ramifications

  • A Supreme Court decision in favor of the petitioners could also undercut President Biden’s proposal to tax the unrealized real estate and other gains of wealthy taxpayers. The President and influential lawmakers such as Senate Finance Chairman Ron Wyden (D-OR) have proposed new mark-to-market taxes on assets based on annual changes in asset values rather than specific realization events. (Roundtable Weekly, Sept. 19, 2019)

  • The Real Estate Roundtable has consistently opposed the proposals to tax unrealized gains since they first emerged in 2019 (Sen. Wyden, Treat Wealth Like Wages, 2019).

JCT Memo

Joint Committee on Taxation logo
  • On Oct. 3, in a letter to House Ways and Means Ranking Democrat Richie Neal (D-MA), the Joint Committee on Taxation (JCT) provided an analysis of how a ruling for the petitioners in Moore could impact the tax code.

  • JCT informed Rep. Neal that partnership taxes, taxation of shareholders of S corporations, and taxes on mark-to-market valuations also could be implicated in the outcome. The income of real estate mortgage investment conduits, or REMICs, also may be affected, according to JCT’s memo.

Alternatively, notes JCT, the Court could rule that the mandatory repatriation tax is a tax on realized income, in which case it could “leave unanswered the question of whether the Constitution imposes a realization requirement.” (JCT memo, p. 2)

Path Uncertain for Pending Tax Legislation as Implementation of Energy Tax Incentives Continues

Posted on by Abigail Grenadier
U.S. Capitol at sunset

The possibility of an end-of-year tax package faces an uncertain path and timeline as House GOP policymakers consider new leadership in the wake of this week’s historic vote to remove Kevin McCarthy (R-CA) as Speaker. Another layer of unpredictability is government funding, which is scheduled to expire Nov. 17 following last week’s passage of a continuing resolution to avert a partial government shutdown.

House Measures

  • In June, the House Ways and Means Committee approved a proposed tax legislative package along party lines that includes measures on business interest deductibility and bonus depreciation. The bill stalled due to differences in the GOP caucus over a boost in the $10,000 deduction cap on state and local taxes (SALT). (Roundtable Weekly, June 16)
  • Prospects for the Ways and Means tax package, other expired provisions such as the expanded child tax credit, and pending real estate-related tax proposals may depend on whether Congressional leaders are able and willing to expand the scope of negotiations over a bill to fund the government. (Roundtable Weekly, Sept. 29)

Regulatory Implementation

Exterior of U.S. Treasury Department
  • On Oct. 17, The Roundtable’s Fall Roundtable Meeting will feature a discussion on Inflation Reduction Act (IRA) incentives impacting CRE. (See Roundtable Clean Energy Tax Incentives Fact Sheet, July 31)
  • Also last week, Treasury provided new information on the process for taxpayers to apply for bonus tax credits for solar and other renewable investments made in low-income communities or in low-income housing developments. (See The Roundtable’s chart, “Base” and “Bonus Rate” Amounts Relevant to Commercial and Multifamily Buildings, May 25).

For more information on energy tax incentives available to real estate under the Inflation Reduction Act, see The Roundtable’s Clean Energy Tax Incentives Fact Sheet, July 31)

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Bipartisan House Legislation Would Encourage Debt Workouts

Posted on by Abigail Grenadier

Bipartisan legislation (H.R. 5580) introduced in the House this week would reduce the tax burden on a borrower that can arise when a troubled commercial real estate loan is modified as part of a debt workout. The legislation, introduced by Reps Claudia Tenney (R-NY) and Brian Higgins (D-NY), could help smooth the transition to a healthy and stable post-pandemic real estate market. 

Restructuring CRE Loans

  • “From the tax law to banking regulation, housing policy, and other areas, public policy has always encouraged the restructuring of unsustainable loans to help businesses turnaround and help taxpayers get back on their feet,” said Real Estate Roundtable President and CEO Jeffrey DeBoer. 
  • During the height of the pandemic, the federal government extended lifelines to businesses (PPP loans), suspended the repayment of federal debts, and imposed foreclosure moratoria on federally backed loans. Emergency legislation expressly excluded the forgiveness of federal loans from cancellation of debt (COD) income.
  • “In the case of commercial real estate, the full economic consequences of the pandemic are still unfolding. Remote work and other challenges facing cities have put stress on certain real estate assets, such as office buildings. Debt workouts between lenders and borrowers are a critical part of the solution. Workouts can ensure that these properties continue supporting jobs and economic activity,” said DeBoer.

Cancellation of Debt (COD) Income

  • The Tenney-Higgins bill would build on existing tax provisions by effectively deferring COD income. For over 30 years, a provision of the law (section 108(c)) has allowed noncorporate taxpayers to defer tax when a loan used to buy, construct, or improve real estate used in a trade or business is modified. To qualify for the provision, the taxpayer must have depreciable basis in the property. The taxpayer’s basis is reduced by the amount of COD income, resulting in smaller depreciation deduction and larger capital gain when the property is eventually sold. 
  • The Tenney-Higgins bill would expand on the current law COD income rules in the case of loans secured by nonresidential real property that were incurred before March 1, 2022 and are discharged in 2023-2026.
  • The Roundtable commends the leadership of Reps. Tenney and Higgins, both members of the tax-writing House Ways and Means Committee, above. The bipartisan bill was cosponsored by Reps. Mike Lawler (R-NY) and Pat Ryan (D-NY).
  • The Roundtable and its industry partners will continue working with House and Senate tax-writing committees to address gaps in the COD income rules and encourage loan restructurings that revitalize properties, save jobs and local tax bases, and strengthen the health and vitality of surrounding communities.

Roundtable President and CEO Jeffrey DeBoer will discuss a range of policy issues facing the industry on Sept. 26 as part of a Marcus & Millichap webcast, “A Conversation with Lloyd Blankfein, Former Chairman and CEO of Goldman Sachs, on the Economy and Commercial Real Estate with Insights from Industry Leaders.” Marcus & Millichap President and CEO Hessam Nadji and former Chairman and CEO of Goldman Sachs Lloyd Blankfein will lead the live webcast discussion on economic factors, including Federal Reserve policy, impacting the commercial real estate market. DeBoer, Tom McGee, President and CEO of ICSC and Sharon Wilson Géno, President of NMHC will join the conversation as CRE industry leaders. (Register here)
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House Ways and Means Members Call on Treasury to Withdraw FIRPTA Regulatory Proposal

Posted on by Trey Jackson

House Ways and Means Committee Members Darin LaHood (R-IL) and Carol Miller (R-WV) recently called on Treasury Secretary Janet Yellen to withdraw a proposed IRS rule that would expand the reach of the Foreign Investment in Real Property Tax Act (FIRPTA) of 1980. The policymakers’ request followed a letter by The Real Estate Roundtable and 14 other real estate trade organizations that urged congressional tax-writing committees to oppose the FIRPTA proposal. (Letter to Yellen, July 28 and Industry coalition letter, March 1)

Retroactive Rewrite for REITs

  • Under current law, shareholders of domestically controlled REITs are not subject to FIRPTA, a statutory regime that subjects foreign investors to capital gains tax on their U.S. property investments.
  • The proposed IRS Look-Through Rule would no longer treat a taxpaying U.S. C corporation that has ownership shares in a REIT as a U.S. person—if more than 25% of the owners of the C corporation are foreign. If enacted, the new rule would trigger FIRPTA capital gains, retroactively, on REITS and investment structures used for decades when planning real estate and infrastructure investments.

Congressional CRE Concerns

buildings cityscape
  • Reps. LaHood and Miller asked Treasury and the IRS to reverse course and withdraw the proposed regulation, stating in their letter, “The proposed regulation’s retroactivity is severely burdensome and is already having a chilling effect on foreign investment, which has been a vital contributor to the economic health of the U.S. commercial real estate market. If Treasury decides to move forward with this proposal, it is imperative that the retroactivity provisions are removed.”
  • The letter also noted the proposed change would limit access to capital at a time when the CRE market is showing signs of destabilization. The House taxwriters added, “We fear this proposal could worsen the commercial real estate outlook and harm the many Americans who rely on these crucial investments in their communities.”

Industry Response

Additionally, The Roundtable, Nareit, American Investment Council, Managed Funds Association, and ICSC submitted comments to Treasury in February in opposition to the proposed look-through rule. The organizations wrote that the regulation would “reverse decades of well-settled tax law, severely misconstrue the statute, and contradict Congressional intent.” (Letter to Treasury, Feb. 27)

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Senate Finance Chairman Seeks Expanded Taxation of Sovereign Wealth Funds’ Real Estate, Other Investments

Posted on by Trey Jackson

Senate Finance Committee Chairman Ron Wyden (D-OR)Legislation introduced this week by Senate Finance Chairman Ron Wyden, above, would repeal tax rules applicable to foreign governments and their investment arms (“sovereign wealth funds”) if that government has more than $100 billion invested globally and does not qualify for an exception. (Wyden’s news release and one-page summary, July 26) 

Section 892 

  • Citing specific concerns related to the recent merger between the Professional Golf Association (PGA) Tour and the Saudi Public Investment Fund, Chairman Wyden’s expansive bill—the Ending Tax Breaks for Massive Sovereign Wealth Funds Act—would deny application of the tax code’s long-standing section 892, which exempts certain passive income earned by foreign governments from U.S. income taxation.
  • Countries that have a free trade agreement or tax treaty with the United States could continue to qualify for section 892, provided they are not listed as a “foreign country of concern”by the U.S. State Department. According to Chairman Wyden, the legislation would apply to China, Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, and Russia. (PoliticoPro, July 26) 

Foreign Investment & CRE 

Real Estate Roundtable President and CEO Jeffrey DeBoer

  • Some of the listed countries are large investors in U.S. commercial real estate and represent a key source of capital for job-creating U.S. real estate investment. 
  • “Section 892 is nearly as old as the tax code itself, and the tax principle it represents—sovereign immunity for foreign governments—is older than the tax code. Disrupting and rewriting these rules on a whim because of a single transaction is risky and unwarranted. The consequences for U.S. real estate, jobs, and the economy could be severe,” said Real Estate Roundtable President and CEO Jeffrey DeBoer, above.
  • “The United States is able to attract foreign capital for jobs and productive real estate investment because foreign investors have confidence in our rule of law. They believe the USA is a safe place to invest,” continued DeBoer. “When leading lawmakers threaten to overturn 100-year-old tax policies because of a single, unpopular transaction, it raises legitimate concerns. Congress should tread carefully in this area and fully understand the potential implications of its action.”
  • CBRE’s Global Head of Capital Markets Christopher Ludeman stated, “Sovereign wealth funds are among the largest and most important investors in global real estate, especially in the U.S. where, by conservative estimates, they have invested over $25 billion since 2021. At a time when capital flows into real estate are scarce, transaction volume is down by 53% in the first half of 2023 compared to the first half of 2022. In this environment, SWFs are an important source of capital, investing close to $9.7 billion this year alone. This is the wrong time to put any new restrictions on capital flows into real estate, which this bill would do.”   

Established Law 

IRS logo

  • The section 892 tax exemption for foreign governments does not extend to commercial activities or active ownership of U.S. real estate. Income from an interest in a U.S. real property-holding corporation that a foreign sovereign does not control is generally exempt from U.S. tax as income from an investment in a U.S. security—consistent with the general rule that section 892 is limited to passive investments.
  • Over the years, Treasury guidance and IRS rulings have further defined the scope of the provision and its interaction with other tax provisions, such as section 897 and the Foreign Investment in Real Property Tax Act (FIRPTA).
  • The original version of section 892 was enacted in 1917 and is based on Supreme Court case law that dates to 1812. Similar foreign government tax exemption regimes apply in other countries, such as the United Kingdom, Canada, Australia, and Japan. See JCT, Economic and U.S. Income Tax Issues Raised by Sovereign Wealth Fund Investment in the United States (2008). 

The Wyden bill includes grandfathering rules that would apply to certain investments through 2025. The rules would cover capital deployed or committed prior to enactment and investments in publicly traded companies, provided the investment is less than 10 percent. Any grandfathering benefits would expire beginning in 2026. (Wyden’s one-page summary of the bill, July 26) 

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Senate Democrats Propose Tax Penalties on Institutional Owners of Single-Family Rental Homes

Posted on by Trey Jackson
SFR portfolio

A group of eight Democratic Senators introduced legislation on July 11 that would prohibit for-profit owners of 50 or more single-family rental homes from taking depreciation or business interest expense deductions on their properties. 

“Short-Sighted Proposal”

  • Senate Banking Committee Chairman Senator Sherrod Brown (D-OH), one of the bill’s sponsors, said, “big investors funded by Wall Street buy up homes that could have gone to first-time homebuyers, then jack up rent, neglect repairs, and threaten families with eviction.” Similar concerns were expressed by several cosponsors: Senator Ron Wyden (D-OR), chair of the Senate Finance Committee, along with Sens. Elizabeth Warren (D-MA), Tina Smith (D-MN), Jeff Merkley (D-OR), Jack Reed (D-RI), John Fetterman (D-PA), and Tammy Baldwin (D-WI).  (Senate Banking press release, July 11)

  • Real Estate Roundtable President and CEO Jeffrey DeBoer, below, said, “Improving and expanding housing affordability is a goal we all share, and any illegal or unjust actions by landlords should not be tolerated. However, this legislation is a short-sighted proposal that will drive up housing costs for working Americans, reduce property values for existing homeowners, and further discourage new home construction.”
Real Estate Roundtable President and CEO Jeffrey DeBoer
  • “The bill deflects attention from the real, underlying causes contributing to high housing costs: inflation, labor shortages, and supply chain challenges; rising interest rates and tight credit conditions; NIMBY’ism, discriminatory zoning rules, and restrictive land-use policies; and insufficient investment in the low-income housing credit, to name just a few. Many of these factors are deep, structural challenges. Institutional investors are a convenient scapegoat and a distraction from the real work that must be done to address housing affordability,” DeBoer added.

  • By denying basic business expense deductions, the Stop Predatory Investing Act would distort housing markets and create additional, restrictive policies that exacerbate the current supply/demand imbalance.

  • Depreciation ensures that the cost of a capital investment is reflected in the measurement of income and recovered, for tax purposes, over the economic life of the investment. Depreciation deductions compensate property owners for the normal wear and tear that reduces the value of a structure over time. Interest expense deductions ensure that taxable income properly takes into account the cost of borrowing to invest in a trade or business.

  • Depreciation and interest expense deductions are not “tax breaks” as suggested by the bill’s sponsors. (Senate Banking one-page summary)

House Tax Legislation

House Majority Leader Steve Scalise (R-LA)
  • Tax legislation advanced by the House Ways and Means Committee in June is unlikely to receive a vote before Congress starts its August recess.

  • House Majority Leader Steve Scalise (R-LA), above, noted this week that the appropriations bills and reauthorization of the National Defense Authorization Act (NDAA), passed today in the House, are the chamber’s current priorities. “Getting the NDAA done and getting the appropriations bills are what are front and center right now. Then, we’ll really look forward to getting that economic agenda moving forward,” Scalise said. (Bloomberg Law, July 12)

  • Republican Ways and Means Committee members last month approved their proposed tax legislative package along party lines, including measures on business interest deductibility, bonus depreciation, and opportunity zones. (Tax Notes, June 14 | Ways and Means Committee, June 13 and Roundtable Weekly, June 9)

Scalise added that Ways and Means Committee Chairman Jason Smith (R-MO) is still “working with other members on remaining issues with that bill.” (Bloomberg Law, July 12)

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Bipartisan Bill Would Correct Condo Construction Tax Accounting Rules and Facilitate Construction Financing

Posted on by Trey Jackson

Construction of condo building in Denver

House Ways and Means Committee members Bill Pascrell Jr. (D-NJ) and Vern Buchanan (R-FL) this week reintroduced the Fair Accounting for Condominium Construction Act (H.R. 4280) to correct current condominium tax accounting rules that hamper construction financing.

 Discriminatory Tax 

  • Current condo tax accounting rules require multifamily developers of condominium buildings to recognize income and pay tax on their expected profit as construction is ongoing. This “percentage-of-completion method” requires payment on pre-sale transactions well before a buyer closes and pays for a transaction.
  • Homebuilders of single-family homes, townhouses and row houses are not subject to this tax accounting rule restriction, which unfairly accelerates federal income tax liability for new condominium construction.
  • The Buchanan-Pascrell legislation would correct the discriminatory tax by providing condominium developers an exclusion from the percentage-of-completion tax method. 

Roundtable Support for Change 

Real Estate Roundtable President and CEO Jeffrey DeBoer

  • Real Estate Roundtable President and CEO Jeffrey DeBoer said, “Developers seeking construction loans face severe headwinds in today’s economy. Our tax accounting rules should not create additional barriers to the financing of new housing construction. Unfortunately, a quirk in the way that federal tax law works accelerates income from the pre-sale of condominium units and prevents developers from using their own revenue to finance condo construction.”
  • “This tax aberration is unique to vertical condo development and does not apply to the construction of townhouses, row houses, or buildings with four or fewer units,” DeBoer continued. “The Buchanan-Pascrell bill would fix this issue and allow taxpayers to put their own capital to work expanding the supply and availability of housing.”
  • The Roundtable is a long-standing advocate to correct this discriminatory rule as developers have struggled to access their own income (condo pre-sales) to self-finance new construction.
  • On August 21, 2019 The Roundtable wrote to former Treasury Secretary Steven Mnuchin requesting regulatory relief from existing tax accounting rules that unfairly accelerate federal income tax liability for new condominium construction. (Roundtable letter)
  • The Roundtable’s letter detailed how the completed contract method of accounting— rather than the percentage- of-completion method—would more accurately fit the economics of condominium construction. (Tax Notes, August 23, 2019)
  • In 2008, the IRS and Treasury released proposed regulations (REG-120844-07) under section 460 that would treat individual condo units as townhouses or row houses. 

The Roundtable’s Tax Policy Advisory Committee (TPAC) continues to advocate for the passage of corrective legislation that would level the playing field for accounting rules impacting condominium construction. 

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