Category: Tax Policy

Real Estate Provisions Included in Tax Extenders Legislation Approved by House Ways and Means Committee

Posted on by Trey Jackson

The House Ways and Means Committee yesterday passed legislation to extend a host of expired and expiring tax credits through 2020 by a vote of 25-17.  Among the bills advanced to the House floor for consideration is the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (H.R. 3301), which includes a deduction for energy efficient commercial buildings (Section 179D).  (House Ways and Means, Markup of Tax Legislation).

  The House Ways and Means Committee yesterday passed legislation to extend a host of expired and expiring tax credits through 2020, including several afecting real estate.
  • Committee Chairman Richard Neal (D-MA) said in his opening statement that extenders would provide “needed certainty for businesses making use of tax provisions that expired in 2017 and 2018, as well as some set to expire this year.”  
  • In addition to the Section 179D tax deduction, H.R. 3301 and its Amendment in the Nature of a Substitute contain other provisions affecting real estate:   

    • Credit for construction of new energy efficient homes (sec. 45L)   

    • Credit for energy efficient improvements to principal residences (sec. 25C)

    • Exclusion of mortgage debt forgiveness (sec. 108(a)(1)(E)) 

    • Deductibility of mortgage insurance premiums (sec. 163(h)(3)(E)) 

    • New markets tax credit (sec. 45D) 

    • Empowerment zone tax incentives (sec. 1391-97 )

In conjunction with the markup, the Joint Committee on Taxation (JCT) issued a report on the estimated revenue effects of H.R. 3301, concluding the extenders bill portion would cost $42.5 billion, which includes $9.3 billion in tax relief for disaster areas. (JCT technical description)  

Ways and Means Chairman Neal indicated he plans to hold a Committee vote on a technical corrections bill later in the year.  
  • The Democrats’ bill would accelerate expiration of the increase in the estate tax exemption that was included in the Tax Cuts and Jobs Act (TCJA).  TCJA doubled the estate tax exemption from $5.7 million to $11.4 million (indexed for inflation).  Under current law, the temporary increase expires at the end of 2025.  In order to pay for the tax extender legislation, the bill accelerates expiration of the estate tax exemption increase to the end of 2022. 
  • Several Republicans expressed concerns over continuing to pass tax “extenders” legislation without looking for long-term solutions to reform, make permanent, or repeal the various provisions.  Chairman Richard Neal (D-MA) said he is willing to consider any suggested reforms at a later stage. (BGov, June 20)
  • In response to an unsuccessful Republican amendment that would have made a number of technical corrections to TCJA, including a much-needed reduction in the cost recovery period for qualified improvement property, Chairman Neal indicated he plans to hold a Committee vote on a technical corrections bill later in the year. 

The Democratic extender bill is widely viewed as an initial negotiating position for talks with Senate Republicans.  Additional changes may be made as the bill goes to the House floor.  In the Senate, Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) in May announced the formation of several bipartisan taskforces to examine and help permanently resolve the fate of more than 30 expired and expiring tax provisions. (Senate Finance Committee   Announcement , May 16 and Roundtable Weekly , May 17) 

New York Overhauls Rent Regulations as Affordable Housing Shortage Attracts National Attention

Posted on by Trey Jackson

Major changes to New York City’s rent regulations passed in Albany last week have drawn attention to a nationwide resurgence of rent control laws considered by cities and states across the nation.  ( Wall Street Journal , June 14).

By keeping more New York City apartments permanently in the regulated system, the new law will diminish the number of available market-rate units, drive-up market-rate rents, and perpetuate an imbalance in affordable housing supply and demand.  
  • The law signed by Governor Andrew Cuomo on June 14 directly impacts about 40 percent of New York City’s apartment stock and expands rent stabilization to counties across the state.  The law generally freezes “stabilized” NYC apartments from ever moving to market rental rates.  (New York Times ,June 12 and June 17).  
  • By keeping more apartments permanently in the regulated system, the new law will diminish the number of available market-rate units, drive-up market-rate rents, and perpetuate an imbalance in affordable housing supply and demand.  Affluent Manhattan residents in stabilized apartments who enjoy a rental windfall will stay in place, while lower-income residents in outer boroughs will likely bear higher rent burdens.  (Wall Street Journal, June 12) 
  • The New York law also dis-incentivizes owners from modernizing aging housing with new roofs, boilers, security systems, and other improvements.  By capping annual rent increases that an owner can charge for major building-wide capital investments, one critic has warned that the law could lead to a “shabbification of rental housing.”  (Citylab, June 13). 
  • Real Estate Board of New York (REBNY) President John Banks stated, “The harmful impact of this legislation will be profound for New York City’s economic future … This legislation will keep rent lower for some, but also significantly diminish housing quality and lead to less tax revenue to pay for vital government services.”  (REBNY statement, June 18) 

Affordable Housing: A National Issue

New York’s action is part of a growing trend of jurisdictions purporting to address skyrocketing housing costs though rent regulations.  Meanwhile, candidates on the 2020 campaign trail are offering plans to address the nation’s “affordable housing crisis.”  ( NPR,  June 18)  

    An  interactive national map provided by the National Multifamily Housing Council (NMHC) details the movement of state capitals eying rent control measures.   
    • An interactive national map provided by the National Multifamily Housing Council (NMHC) details the movement of state capitals eying rent control measures.  
    • A real estate industry coalition recently opposed a rent control measure under consideration in California.  In a letter to Sacramento lawmakers, the coalition explained that increasing housing supplies with new construction built by public-private partnerships will “help bring the price point down,” and that it is “more effective to tie assistance to a renter rather than a rental unit.” (NMHC, June 17) 
    • Proposals in Congress that aim to expand and incentivize the construction of affordable housing would be more effective in addressing the nation’s housing challenges (compared to government-mandated rental price-fixing).  Recently proposed measures would expand the low-income housing tax credit program (e.g., S. 1703,  H.R. 3077), and create a similar tax credit geared to moderate-income, workforce housing (S. 3365, 115th Cong.). 
    • Housing and Urban Development Secretary Ben Carson has offered a strategy to boost affordable housing by encouraging localities to ease their own building restrictions. Carson’s proposal has gained support of House Financial Services Committee Chair Maxine Waters (D-CA).  It would provide federal monetary incentives for local governments to ease land-use and zoning regulatory barriers that can feed into “NIMBY-opposition” against affordable housing and drive-up development and construction costs. (Politico, June 14) 

    “Although they are well-intended, we know from decades of experience that rent control regulations distort markets, create shortages, and depress business investments.  They often harm the communities they seek to help,” said Jeffrey D. DeBoer, President and CEO of The Real Estate Roundtable. “Policy makers should avoid rent control measures and rather seek solutions that grow America’s residential stock, to enable our communities to provide safe and decent housing for low-income families and the teachers and first-responders in our workforce.”

    House Tax Writers Air Priorities, Address Technical Correction for Qualified Improvement Property Provision

    Posted on by Trey Jackson

    The House Ways and Means Committee on June 4 held a Members’ Day Hearing to address tax legislative priorities for the remainder of the year – including technical corrections to the Tax Cuts and Jobs Act (TCJA) that would correct a drafting error affecting qualified improvement property (QIP).  Numerous other tax priorities are also expected to crowd the congressional agenda, including expired or expiring tax provisions; repeal of the state and local tax deduction cap; the national debt limit; and budget spending caps.

    The House Ways and Means Committee held a Members’ Day Hearing to address tax legislative priorities for the remainder of the year – including technical corrections to theTax Cuts and Jobs Act(TCJA) that would correct a drafting error affecting qualified improvement property (QIP).

    • A coalition of businesses and trade groups, including The Real Estate Roundtable, urged all members of Congress in April to cosponsor the Restoring Investment in Improvements Act (H.R. 1869 /  S. 803) – a bill that would correct the QIP drafting error.  The legislation would give qualified improvement property a 15-year depreciation period and restore its eligibility for accelerated bonus depreciation. (QIP Policy Comment Letter and Roundtable Weekly, April 26)
    • The QIP error has resulted in a significantly longer 39- or 40-year cost recovery period for interior improvements to nonresidential property, such as tenant build-outs.  The intent of Congress was to allow the immediate expensing of QIP – or provide a 20-year recovery period in the case of taxpayers electing out of new limitations on the deductibility of business interest.
    • During the hearing, Rep. Adrian Smith (R-NE) said that QIP should be addressed as soon as possible and technical corrections should reflect the intent of lawmakers.  Rep. Roger Marshall (R-KS) discussed how QIP’s 39 depreciation adversely impacts small businesses, suggesting it should be dropped to 15 years.  And Rep. Jackie Walorski (R-IN) emphasized the need for a QIP fix, advocating for H.R. 1869. 
    • Reps. Walorski and Jimmy Panetta (D-CA) introduced the Restoring Investment in Improvements Act on March 26. The Senate companion bill (S. 803) was introduced earlier that month by Sens. Pat Toomey (R-PA) and Doug Jones (D-AL).  (Roundtable Weekly, March 15) 

      Ways and Means Chairman Richard Neal (D-MA) will discuss tax policy with Roundtable members on June 11 during the organization’s Annual Meeting in Washington, DC.

    • Beth Bell, Democratic tax counsel for Ways and Means, acknowledged many committee members are interested in TCJA technical fixes, including QIP.  Yet she emphasized during a May 30 Federal Bar Association meeting, “I think we need to get through processing or considering what to do with an extenders package before we get to a technical corrections package.” (BGov, May 30)
    • In the Senate, Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) last month announced the formation of several bipartisan taskforces to examine and help permanently resolve the fate of 42 expired and expiring tax provisions.  (Senate Finance Committee Announcement, May 16 and Roundtable Weekly, May 17)
    • A preliminary draft of House legislation obtained by Bloomberg Tax last week would pay for the extension of temporary tax provisions through 2019 by changing the expiration date of estate tax relief included in TCJA. 

    House Ways and Means Chairman Richard Neal (D-MA) will discuss tax policy with Roundtable members on June 11 during the organization’s Annual Meeting in Washington, DC.  QIP and tax extenders will be among several tax policy issues discussed in detail during The Roundtable’s Tax Policy Advisory Committee (TPAC) meeting on June 12.

    Treasury Releases Proposed Regulations on FIRPTA Foreign Pension Fund Exemption

    Posted on by Trey Jackson

    The Treasury Department yesterday issued proposed tax regulations clarifying the scope and operation of the foreign pension fund exemption from the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).  (Federal Register, June 7)  The proposed rules appear to be overwhelming positive and likely to resolve most, if not all, of foreign investors’ remaining concerns.

    The Treasury Department  issued proposed tax regulations clarifying the scope and operation of the foreign pension fund exemption from the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).  (Federal Register, June 7)  The proposed rules appear to be overwhelming positive and likely to resolve most, if not all, of foreign investors’ remaining concerns.

    • FIRPTA imposes U.S. capital gains tax on the sale of a U.S. repeal property interest by a foreign investor.  FIRPTA results in a discriminatory tax on foreign investment in US real estate and infrastructure that does not apply to any other asset class.  The FIRPTA regime is an anti-competitive outlier that deflects global capital to other markets.
    • With the strong support of The Real Estate Roundtable, Congress passed in 2015 the first major reforms to FIRPTA since its enactment in 1980.  The changes included a new exemption from FIRPTA for qualified foreign pensions funds and doubled the amount a foreign interest may invest in a U.S. publicly traded REIT.  (Roundtable Weekly, Dec. 18, 2015) 
    • After passage of the 2015 PATH Act, some questions remained regarding whether certain foreign entities and arrangements would qualify for the foreign pension fund exemption.  The Roundtable encouraged Congress to clarify that the foreign pension fund definition covers a number of number of different arrangements, including:  governmental, Social Security-type plans; plans established for the self-employed; multi-employer plans; plans sponsored by political subdivisions; and situations where an entity pools retirement assets from multiple pension plans.
    • In March 2016, the Joint Committee on Taxation provided support for a broad interpretation of the FIRPTA foreign pension fund exemption with its “Blue Book” on tax legislation enacted in 2015.  (Roundtable Weekly, March 18, 2016)  In March 2018, Congress passed FIRPTA technical corrections legislation codifying many of The Roundtable’s recommendations.  (Roundtable Weekly, Mar. 23, 2018; The Blue Slip, Mar. 2018)
    • The newly proposed regulations adopt a broad view on what constitutes a qualified foreign pension fund.  According to the regulations’ preamble, “[t]he Treasury Department and the IRS have determined that the purpose of section 897(l) is best served by permitting a broad range of structures to be eligible to be treated as a qualified foreign pension fund.”  This sentiment is then extended in the proposed rules to a wide range of pension arrangements, including multi-employer and government-sponsored public pension funds, as well as retirement funds organized by trade unions, professional associations, or similar groups. 
    • Additionally, the proposed regulations confirm that entities wholly owned by multiple foreign pension funds can qualify for the exemption.  Similarly, entities can qualify for the exemption indirectly through a chain of ownership.  These were important clarifications for common foreign pension fund structures.  

    Building on the success of the PATH Act reform, The Roundtable and other stakeholders are encouraging Members of Congress to repeal FIRPTA entirely by passing the bipartisan Invest in America Act sponsored by Representatives John Larson (D-CT) and Kenny Marchant (R-TX).  (Roundtable Weekly, Apr. 12, 2019)  FIRPTA will be one of several tax topics discussed during The Roundtable’s Annual Meeting on June 11 in Washington, DC and at the Tax Policy Advisory Committee meeting on June 12.

    Senate Finance Committee Ranking Member Introduces Bill to Tax Carried Interest at Ordinary Income Rates

    Posted on by Trey Jackson

    Senate Finance Committee Ranking Member Ron Wyden (D-OR) yesterday introduced legislation to fundamentally alter the longstanding tax treatment of a profits interest in a real estate partnership. 

    Senate Finance Committee Ranking Member Ron Wyden (D-OR) has introduced legislation to fundamentally alter the longstanding tax treatment of a profits interest in a real estate partnership.

    • The Wyden proposal (detailed summary of the legislation and one-pager) would depart dramatically from prior carried interest legislation by taxing partners before any capital gain or even rental income is generated by the partnership.  For example, it would give rise to large amounts of taxable (but phantom) income for a general partner with a profits interest during the pre-construction and development phase of a real estate project.
    • The legislation would treat a profits interest in a real estate partnership as an interest-free loan from the other partners. The bill would effectively tax the partner with a profits interest annually, at ordinary income rates, on his or her deemed share of the invested capital by multiplying the deemed share by a specified interest rate (9% plus the variable yield on a corporate bond index that is currently 2.93%).  The product would be considered taxable, ordinary income.
    • In addition to taxing partners currently on non-existent, illusory income, in many cases the legislation would not allow partners to recover the taxes down the road if the project ultimately fails to produce a capital gain.  That’s because the losses would be treated as capital losses that generally are nondeductible against ordinary income. 
    • General partners are currently taxed at ordinary income rates on their management fees and other income that is compensatory in nature.  Partners owe tax on any guaranteed payments for services provided.  Under the Wyden bill, however, a real estate entrepreneur would be taxed today on a partnership’s invested capital-capital at risk-irrespective of whether the project will ever generate income.  

    • The  Real Estate Roundtable opposes both Senate and House carried interest proposals. General partners earning a carried interest in a real estate partnership bear significant risks beyond direct capital contributions. These risks can include funding predevelopment costs, guaranteeing construction budgets and financing, and exposure to potential litigation over countless possibilities. 

    • Senator Wyden’s bill came just days after a televised interview in which President Trump indicated he still intends to address the carried interest issue.  (FOXBusiness, May 20).  “If President Trump wants to address carried interest and make the tax code more fair, he’ll be happy to support my new proposal,” said Sen. Wyden. (Wyden news release, May 23) 
    • Other legislative proposals to reform the taxation of carried interest were introduced in March by Sen. Tammy Baldwin (D-WI) and House Ways and Means Committee member Bill Pascrell, Jr. (D-NJ).  (News releases: Baldwin and Pascrell)
    • The Roundtable and 13 other national real estate organizations sent a letter to members of the House Ways and Means Committee on March 26 about the adverse impact that the Baldwin-Pascrell legislation (H.R. 1735) would have on U.S. real estate and entrepreneurial risk taking.  (Roundtable Weekly, March 29)  
    • The letter notes how the bill would result in a huge tax increase on Americans who use partnerships in businesses of all types and sizes – and would be particularly harmful to the nearly 8 million partners in U.S. real estate partnerships.  
    • The March 26 letter states, “The false narrative surrounding the carried interest issue is that it targets only a handful of hedge fund billionaires and Wall Street executives.  The carried interest legislation is far broader and would apply to real estate partnerships of all sizes-from two friends owning and leasing a townhome to a large private real estate fund with institutional investors.” 

    The Real Estate Roundtable opposes both Senate and House carried interest proposals.  General partners earning a carried interest in a real estate partnership bear significant risks beyond direct capital contributions. These risks can include funding predevelopment costs, guaranteeing construction budgets and financing, and exposure to potential litigation over countless possibilities.

    GOP Leaders Considering Legislation to Make Recent Tax Cuts Permanent; House Speaker Paul Ryan Announces Retirement, Endorses Majority Leader Kevin McCarthy

    Posted on by Trey Jackson

    House and Senate GOP leaders signaled this week they intend to pursue legislation that would make permanent the individual tax provisions enacted as part of the Tax Cuts and Jobs Act (P.L. 115-97) enacted last December (Roundtable Weekly, Dec. 22, 2017)

    House Majority Leader Kevin McCarthy (R-CA), left, and House Ways and Means Committee Chairman Kevin Brady (R-TX) discussed the impact of  recent tax reform; a possible phase 2 effort; the recent resignation of House Speaker Ryan; and the endorsement of McCarthy as his successor on  CNBC’sSquawk on the Hill  .

    Under current law, many of the individual provisions – including the lower effective tax rate on pass-through business income – will sunset after 2025.  Although the nonpartisan Congressional Budget Office (CBO) projected last week that the tax bill would add 1.9 trillion dollars to the national debt over a decade, making permanent the cuts that lapse after 2025 could add an additional 1.5 trillion over the next decade, according to a Tax Foundation analysis.  (Roundtable Weekly, April 13 and Reuters, April 17)
     
    House Speaker Paul Ryan (R-WI) on Tuesday said, “We fully intend to make these things permanent, and that’s something we’ll be acting on this year.” (Reuters, April 17).  Senate Majority Leader Mitch McConnell (R-KY) added, “If they are interested in making the individual rates permanent that’s something we ought to take a look at. I don’t know why we wouldn’t want to do that” (Politico, April 17)
     
    In addition to making the individual provisions permanent, House Ways and Means Committee Chairman Kevin Brady (R-TX) has also floated making immediate business expensing permanent, among other changes. (Bloomberg, March 28 and Miller & Chevalier, DC TaxFlash, April 17)
     
    Although prospects for passing what President Trump calls a “phase-two” tax cut bill in the House are possible, a Senate bill would require 60 votes for passage, which Democrats could prevent in the closely divided chamber.  (CNBC, April 5)
     
    Brady and House Majority Leader Kevin McCarthy (R-CA) on Tuesday discussed the impact of  recent tax reform; a possible phase 2 effort; the recent resignation of House Speaker Ryan; and the endorsement of McCarthy as his successor on CNBC’s Squawk on the Hill .
     
    After recently announcing his retirement from Congress when the current legislative session ends in early 2019, Ryan declared his support for McCarthy as the next GOP House Speaker. (Deloitte, April 13 and ABC News, April 13) 
     
    The next GOP House Speaker candidate must get 218 votes in a floor vote, which gives the 30-member conservative House Freedom Caucus leverage to propose one of their members for a leadership position.  Such negotiations will be irrelevant if Republicans lose the House in the 2018 midterm elections. (USA Today, April 18)

    House GOP Unveils “Tax Reform 2.0” Outline; Capital Gains Indexing Bill Introduced

    Posted on by Trey Jackson

    House Ways and Means Committee Chairman Kevin Brady (R-TX) on July 24 outlined a proposed second round of tax cuts to House Republicans, who hope to vote on “Tax Reform 2.0” before the midterm elections..

    In an interview with CNBC, Brady expanded on the three core components of the Tax Reform 2.0 proposal.

    • Chairman Brady stated. “With this framework, we are taking the first step to change the culture in Washington D.C. where tax reform only happens once a generation. We plan to work off this framework to build on the growing successes of the Tax Cuts and Jobs Act and ensure this energized economy continues moving forward.”  (House Ways and Means Statement, July 24)
    • In an interview with CNBC, Brady expanded on the three core components of the 2.0 proposal: 
      • making the individual and small business tax cuts enacted by the 2017 Tax Cuts and Jobs Act permanent’
      • promoting family savings through retirement accounts, a new universal savings account, and
      • expanded 529 education savings accounts; and spurring business innovation by allowing new businesses to write off more of their initial start-up costs, and removing barriers to growth.
    • The central feature of the proposal – a permanent extension of tax cuts for individuals – is unlikely to pass the Senate, where it would need Democratic support.  (The Hill, July 24) 

      Senior Ways and Means Committee Member Devin Nunes (R-CA) has introduced legislation (H.R. 6444) to index capital gains to inflation – a proposal that would reduce the tax burden on long-lived assets, including real estate.

    • Although House Republicans aim to vote on “Tax Reform 2.0” legislation in September, a tax technical corrections bill may not be voted on until after the November elections. (Roundtable Weekly, July 20)
    • Meanwhile, senior Ways and Means Committee Member Devin Nunes (R-CA) has introduced legislation (H.R. 6444) to index capital gains to inflation – a proposal that would reduce the tax burden on long-lived assets, including real estate.  An inflation adjustment for capital gains previously passed the House in the 1990s but died in the Senate.  House tax-writers may consider indexing capital gains as part of Tax Reform 2.0.  (The Hill, July 20)
    • Separately, attention this week was focused on a mistake affecting qualified improvement property cost-recovery tax rules. An amendment (# 3597) introduced yesterday by Sen. Pat Toomey (R-PA) to an appropriations bill (H.R. 6147) would correct a drafting error in the Tax Cuts and Jobs Act that unintentionally pushed the recovery period for property improvements from 15 to 39 years.  As a result of the mistake, businesses across the country are delaying, or significantly reducing, capital expenditures for building improvements, undermining job creation and economic activity. (BGov, July 26)
    • Additionally, the Treasury Department has sent draft regulations regarding the new deduction for pass-through business income to the White House Office of Management and Budget (OMB) for formal review.  Under a recent agreement between the two agencies, OMB has 10 days to review the regulations before they are issued, unless the parties mutually agree to extend the review period.  (TaxNotes, July 25)

    In January, The Roundtable wrote to Treasury Secretary Mnuchin  offering several suggestions designed to maximize the economic impact of the pass-through deduction and avoid unnecessary disruptions to business activity.  [Roundtable Letter, Jan. 18].

    Treasury Issues Regulations on New Pass-Through Business Income Deduction

    Posted on by Trey Jackson

    The Internal Revenue Service (IRS) and the Department of the Treasury on August 8 released guidance on the new pass-through deduction enacted in last year’s tax overhaul bill. 

    “The pass-through deduction is an important tax cut for small and mid-size businesses, reducing their effective tax rates to their lowest levels since the 1930s,” said Treasury Secretary Steven Mnuchin, above. “Pass-through businesses play a critical role in our economy. This 20-percent deduction will lead to more investment in U.S. companies and higher wages for hardworking Americans.” 

    • The Tax Cuts and Jobs Act signed by President Trump in December included a new 20 percent pass-through deduction (section 199A) that can lower the top tax rate on qualifying pass-through business income to 29.6 percent. Such income was previously taxed at a top rate of 39.6 percent.   
    • According to Treasury’s press release, the guidance is intended to: 
      • “Ensure that all small business income below $315,000 for married couples filing jointly (and $157,000 for single filers) is eligible for the deduction”;  
      • “Provide clarity and flexibility for filers over those income thresholds by:  
           • Including ‘aggregation rules’ for filers with pass-through income from multiple sources;… 
           • Issuing guidance relating to specified service, trade or business (SSTB) income above the thresholds, which may be subject to limitation for the purposes of claiming the deduction; and… 
           • Allowing a de minimis exception to avoid unnecessary compliance costs for businesses earning only a small percentage of SSTB income”; and 
      • “Establish anti-abuse safeguards to prevent improper tax avoidance schemes, such as relabeling employees as independent contractors.” 
    • “The pass-through deduction is an important tax cut for small and mid-size businesses, reducing their effective tax rates to their lowest levels since the 1930s,” said Treasury Secretary Steven Mnuchin.  “Pass-through businesses play a critical role in our economy.  This 20-percent deduction will lead to more investment in U.S. companies and higher wages for hardworking Americans.” 
    • “The proposed pass-through regulations are a critical step forward in the implementation of tax reform provisions affecting real estate investment, jobs, and economic activity,” said Jeffrey DeBoer, Real Estate Roundtable President and CEO.  “A regulatory framework for the pass-through deduction is necessary to give taxpayers the certainty they need to move forward with new job-creating real estate projects that strengthen and enhance communities.” 
    • The proposed regulations address several issues affecting real estate, such as the ability to aggregate income from multiple real estate partnerships.  Some areas may need further development, such as the rules related to like-kind exchanges. 
    • In January, The Roundtable wrote to Treasury Secretary Mnuchin offering several suggestions designed to maximize the economic impact of the pass-through deduction and avoid unnecessary disruptions to business activity. [Roundtable Letter, Jan. 18].  

    The 184-page proposed regulation on the deduction will be formally published in a future edition of the Federal Register. Stakeholders and other interested parties will then have 45 days to submit public comments, followed by a public hearing on the proposed regulation on October 16.

    House Ways and Means Chairman Kevin Brady (R-TX) Releases Tax Bill Addressing “Extenders” and Technical Corrections

    Posted on by Trey Jackson

    House GOP leaders yesterday delayed a vote on a $54 billion dollar tax bill released Monday (H.R. 88) by House Ways and Means Chairman Kevin Brady (R-TX) that includes tax “extenders” and technical corrections of importance to commercial real estate.  (Brady Statement, Nov. 26 and CQ, Nov. 30) 

    GOP leaders yesterday delayed a vote on a $54 billion dollar tax bill released Monday (H.R. 88) by House Ways and Means Chairman Kevin Brady (R-TX), above, that includes tax “extenders” and technical corrections of importance to commercial real estate.  (Brady Statement, Nov. 26)

    • Specific provisions affecting real estate include technical corrections to fix errors in last year’s Tax Cuts and Jobs Act.  The bill would:
    •  
      • shorten the cost recovery period for qualified improvement property, a new category of depreciable property that covers upgrades and improvements to the interior of nonresidential buildings;
      • clarify that the new 20 percent deduction for pass-through business income extends to REIT dividends received by mutual fund shareholders;
      • temporarily extend the expired deduction for energy-efficient commercial building property (Section 179D); and
      • temporarily extend other expired provisions affecting homeowners, such as a deduction for mortgage insurance premiums and a tax exclusion for mortgage debt forgiveness.  (Roundtable Weekly, Oct. 19) 
    • In October, The Roundtable along with 239 businesses and trade groups, wrote to Secretary Mnuchin urging the Treasury Department to provide administrative relief from a drafting mistake that increased the cost recovery period for qualified improvement property (QIP) to 39 years, instead of 15. (Roundtable Weekly, Oct. 12)  

    It is uncertain when the wide-ranging tax bill will be considered but debate on the legislation may take place next week.  

    Senate Democrats, whose support is needed to assure passage of any tax changes before next year, reportedly, “are determined to win concessions in exchange for providing votes to fix errors in last year’s law.  (Wall Street Journal, Nov. 30)  Yet it remains unclear what concessions Democrats are seeking.  When asked about the bill’s prospects in the Senate, Sen Charles Grassley (R-IA), the likely Senate Finance chairman next year, said “Not if brought up separately, only if it’s put in the funding bill.”  (CQ, Nov. 28). 

    Lawmakers May Address Tax “Extenders” and Technical Corrections in Lame Duck Session; Sen. Charles Grassley (R-IA) to Succeed Sen. Orrin Hatch (R-UT) as Chair of Finance Committee

    Posted on by Trey Jackson

    Congress returned to Washington this week to prepare their lame duck session agenda, which is expected to address a federal government spending bill and possible tax legislation. 

    Specific tax policies affecting commercial real estate that may be addressed in the lame duck session include technical corrections to fix errors in last year’s Tax Cuts and Jobs Act. 
    • On Tuesday, outgoing House Ways and Means Committee Chairman Kevin Brady (R-TX) outlined several tax priorities, including legislation that may address tax deduction extensions and 70 to 80 technical corrections (The Hill, Nov. 13).  “We’re prepared and ready if there’s an appetite to move some of these things and get them off of Congress’s plate this year,” said Chairman Brady. (Tax Notes, Nov. 14) 
    • Specific tax policies affecting commercial real estate that may be addressed include technical corrections to fix errors in last year’s Tax Cuts and Jobs Act, including:
      • the cost recovery period for qualified improvement property (QIP);
      • Section 179D reforms to incentivize private sector retrofits for energy efficient building improvements, and
      • other expired provisions affecting homeowners, such as a deduction for mortgage insurance premiums.  (Roundtable Weekly, Oct. 19) 
    • In October, The Roundtable along with 239 businesses and trade groups, wrote to Secretary Mnuchin urging the Treasury Department to provide administrative relief from a drafting mistake that increased the cost recovery period for qualified improvement property (QIP) to 39 years, instead of 15. (Roundtable Weekly, Oct. 12) 
    • On Friday, Senator Charles Grassley (R-IA) announced he would give up his position leading the Senate Judiciary Committee to assume the chairmanship of the Senate Finance Committee when Congress reconvenes in January.  Senator Orrin Hatch, the current Finance Chairman, is retiring after 42 years in the U.S. Senate.  This will be the third time that Sen. Grassley has chaired the Finance Committee, having held the panel’s top job twice in the 2000s. (Bloomberg, Nov. 16)

    Congress will return for the lame duck session to address these issues and many more, the week after Thanksgiving.  Roundtable Weekly will resume publication on Nov. 30.