Tag: Capital Gains

New Research Details Trends in Like-Kind Exchanges and Impact on US Economy

Posted on by Trey Jackson

TPAC during Annual Mtg 2022

New research highlights emerging trends related to real estate like-kind exchanges (LKEs) and their growing importance to the US economy. The report by EY economist and former Treasury Deputy Assistant Secretary for Tax Analysis Robert Carroll was presented to The Real Estate Roundtable’s Tax Policy Advisory Committee (TPAC), above, on June 17. EY partnered with the Real Estate Like-Kind Exchange Coalition, which includes The Roundtable, to produce the updated LKE report with 2021 data. (TPAC slide presentation, June 17)

LKE Data and Trends

EY LKE presentation to TPAC 2022

  • LKEs under section 1031 of the tax code allow businesses to defer capital gains tax on the disposition of real estate if the gain is used to acquire replacement property of like kind within six months.
  • The EY report—“Economic Contribution of the Like-Kind Exchange Rules to the US economy in 2021: An Update”—updates EY’s prior research that used LKE data from 2019.
  • The survey found that the dollar volume of like-kind exchange activity and number of transactions increased by 70% between 2019 and 2021. The increase was identified by a survey of qualified intermediaries as the US economy recovered from the COVID recession.
  • According to the author, the increase in LKE activity “is likely due, in part, to the transition of many qualified real property assets to new or modified uses to meet post-pandemic business models and tenant needs, a trend that may continue, at least to some degree, for the next several years.”

LKE Economic Impact

EY LKE updated data 2021

  • The EY report estimates the impact of like-kind exchange rules on the cost of capital and assesses the likely impact of section 1031 on investment decisions and investment levels. EY’s significant findings include:
    • Job growth and labor income
      Overall, economic activity generated by Section 1031 exchanges in 2021 supported 976,000 jobs and $48.6 billion of labor income.
    • Gross Domestic Product
      Like-kind exchanges generated $97.4 billion in value added in the United States in 2021. “Value added” measures a sector’s or industry’s contribution to the production of final goods and services.
    • Federal, state, and local tax revenue
      Taxpayers engaged in like-kind exchanges—along with suppliers and related consumer spending—were estimated to generate approximately $13.1 billion in federal, state, and local taxes during 2021.
  • The EY research builds on the groundbreaking academic research on LKEs commissioned by The Roundtable and other members of the Real Estate Like-Kind Exchange Coalition at the height of the tax reform debate. This work by Professors David Ling (Univ. Fla.) and Milena Petrova (Syracuse U.) was subsequently published in 2020 in the peer-reviewed Journal of Real Estate Literature here and here.

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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Inflation, National Policy Agenda, and CRE Market Conditions Focus of Roundtable Annual Meeting

Posted on by Trey Jackson

2022 Real Estate Roundtable Annual Meeting Audience

The Roundtable’s 2022 Annual Meeting in Washington, DC this week focused on key policy issues affecting the commercial real estate industry—including inflation and interest rates; prospects for a scaled-back Build Back Better (BBB) Act; proposed climate risk disclosure rules; and a new industry Equity, Diversity, and Inclusion initiative.

Policy Focus

DeBoer and Manchin at 2022 Roundtable Annual Meeting

  • Roundtable President and CEO Jeffrey D. DeBoer, left, launched the June 16 business meeting with an overview of The Roundtable’s Policy Agenda and newly released 2022 Annual Report, Building a More Resilient and Dynamic Future. Annual Meeting guests included:
    • Sen. Joe Manchin (D-WV)
      Sen. Manchin, above right, discussed the benefits of a bipartisan approach to legislation and the role of inflation in considering any additional spending bills this year.
    • Sen. John Thune (R-SD)
      Sen. Thune spoke about supply chain issues, aid for Ukraine, the Fed and monetary policy, and the upcoming elections.
    • Rep. Abigail Spanberger (D-VA)
      Rep. Spanberger addressed efforts to produce common-sense gun policy, lower inflationary costs for families and policymaking in the House during the upcoming lame duck session.
    • Jim VandeHeiAxios and Politico co-founder and CEO discussed the current political environment, potential challengers to President Biden, the upcoming congressional elections, and the advantages of delivering news and analysis about today’s policy landscape in an efficient, “smart brevity” style.
    • Jonathan KarlABC New’s Chief Washington Correspondent spoke about the current political environment and the midterm elections.

Supplier Diversity & CRE

Rock Irvin, Chief Commercial Officer, SupplierGATEWAY (left) and Adenuga Solaru Chief Executive Officer (right)

  • The Annual Meeting also included an initiative of The Roundtable’s Equity, Diversity, and Inclusion (ED&I) Committee, chaired by Jeff T. Blau (Chief Executive Officer and a partner of Related Companies).
  • A proposed two-year pilot program was discussed with SupplierGATEWAY—a firm that assists companies interested in hiring Minority- and Women-Business Enterprises (MWBEs) as contractors, service providers, JV partners, and other “vendors” in their “supply chains.” (Photo: SupplierGATEWAY’s Rock Irvin, left, Chief Commercial Officer, with Adenuga Solaru, Chief Executive Officer)
  • The proposed online SupplierGATEWAY portal would support CRE firms interested in accessing a broad and centralized MWBE vendor database, posting hiring opportunities for those contractors, and utilizing tools to assist with corporate ESG reports.
  • SupplierGATEWAY’s executives demonstrated a CRE-specific “prototype” of their MWBE management portal that could be available by the fall for companies who may subscribe to the service. 
  • For more information regarding The Roundtable’s supplier diversity initiative, contact Roundtable Senior Vice President and Counsel, Duane Desiderio (ddesiderio@rer.org).

CRE Markets & Policy Advisory Committees

TPAC Meeting at Annual 2022 Meeting

  • The Roundtable’s Policy Advisory Committee leadership discussed their policy issue activities during the business meeting and referred to a Policy Issues Toolkit for background information on how key issues impact commercial real estate (see Executive Summary). Each committee met in conjunction with the Annual Meeting to address the following:  
    • The Sustainability Policy Advisory Committee (SPAC) focused on a recent Securities and Exchange Commission (SEC) proposed rule that would require registered companies to report on climate-related financial risks. The Roundtable submitted a comment letter to the SEC last week on the proposed rules. (Roundtable Weekly, June 10 and Roundtable comments | SPAC Agenda).
       
    • The Research and Real Estate Capital Policy Advisory Committees (RECPAC) met jointly with Rep. Rep. French Hill (R-AR) to discuss the congressional legislative agenda and capital markets from his perspective as a member of the House Financial Services Committee and Ranking Member of its Subcommittee on Housing, Community Development and Insurance. (Joint RECPAC-Research Agenda)
    • The Tax Policy Advisory Committee (TPAC) drilled down on a Senate proposal to tax unrealized gains associated with appreciated assets, partnership tax rules, like-kind exchanges, Opportunity Zone incentives, and energy-efficiency tax provisions. (TPAC Agenda)
    • The Homeland Security Task Force (HSTF) and Risk Management Working Group (RMWG) met jointly to discuss current threat issues, with presentations by Kevin Vorndran, Deputy Assistant Director, Counterterrorism Division, FBI and Nitin Natarajan, Deputy Director of the Cybersecurity and Infrastructure Security Agency (CISA). (Joint HSTF-RMWG Agenda)

Next on The Roundtable’s calendar is the Sept. 20-21 Fall Meeting (Roundtable-level members only).

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Senate Republicans Propose Middle-Class Tax Relief, Financed by SALT Cap Extension

Posted on by Trey Jackson

Capitol dome side flag overcast

Congressional Republicans this week proposed legislative measures—aimed at helping middle-class savers and spurring investment without further increasing inflation—as a precursor of GOP economic policies that may be promoted during the fall’s midterm elections. Senate and House announcements on inflation followed last week’s Labor Department report showing the consumer price index reached 8.6 percent in May. In response, the Federal Reserve raised interest rates  by 75 basis points, its largest hike since 1994. (Wall Street Journal and Tax Notes, June 14 | CNBC, June 15) 

Senate GOP Proposal 

  • This week, Sens. Chuck Grassley (R-IA), John Barrasso (R-WY), Steve Daines (R-MT), and James Lankford (R-OK) introduced the Middle-Class Savings and Investment Act.  The legislation aims to help the middle class through tax cuts and savings incentives, paid for by extending the current $10,000 cap on the deduction for state and local taxes. (Sen. Grassley news release, June 14) 
  • The Republican-introduced bill would:
    • Expand the Zero Rate Bracket for Capital Gains and Dividend IncomeThe legislation would increase the size of the zero percent tax bracket for long-term capital gains and qualified dividends. Under the proposal, a married couple with income under $178,000 would not owe tax on capital gains and dividend income. 
    • Provide Relief from the Net Investment Tax for a Married CoupleThe legislation would exempt the first $400,000 earned by a married couple from the 3.8 percent net investment income tax that otherwise applies to capital gains, dividends, and passive rental income. Currently, the first $200,000 earned by an individual and $250,000 earned by a married couple is exempt from the tax. 
    • Create and Expand Tax Relief for Interest Income and Retirement SavingsThe legislation would allow individuals to exclude up to $300 ($600 if married) of interest income from taxation. Additionally, the bill would expand the tax credit that encourages low-income taxpayers to contribute to a qualified retirement account. (Backgrounder on the Senate legislation)
  • The bill would be paid for by extending the current $10,000 cap on the deductibility of state and local taxes for three years, or however long is needed. The deduction is scheduled to expire at the end of 2025.  

House Republican Outline 

R Ways and Means Brady graphic

  • On June 14, House Ways and Means Committee Republicans released a one-page document outlining a six-point plan to combat inflation. The GOP calls for repurposing $170 billion in unspent pandemic federal aid for deficit reduction while pursuing permanent tax relief. The list of principles also urges policymakers to reject the Biden administration’s proposed overhaul of the tax code affecting corporations and wealthy individuals. (BGov, June 15)
  • The proposals to fight inflation by congressional Republicans seek to provide a contrast to the approach by Democrats, which includes cutting prescription drug costs and increasing taxes on oil company profits. (PoliticoPro, June 14) 

The Roundtable’s Tax Policy Advisory Committee (TPAC) met today in conjunction with The Roundtable’s 2022 Annual Meeting to discuss policy issues affecting the taxation of commercial real estate. (See story above). 

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Coalition Requests Changes to Treasury Tax Regulations Affecting Outbound Foreign Real Estate Investment

Posted on by Trey Jackson

IRS BuildingThe Real Estate Roundtable and four other national trade groups submitted recommendations to modify proposed Treasury regulations regarding partnerships and other pass-through entities that own direct or indirect interests in a passive foreign investment company (PFIC). (Read PFIC comment letter, April 25)

Passive Foreign Investment Companies and Proposed Regulations

  • A PFIC is a foreign corporation that derives a significant share of its income from passive sources or primarily owns assets that are held for the production of passive income, including capital gains, interest, dividends and rent. PFICs commonly arise when structuring investment funds and pooling capital to invest in foreign real estate.
  • Special U.S. tax rules apply to PFIC income. The rules generally accelerate the recognition of PFIC income by PFIC shareholders, or impose an interest charge if the income is deferred. PFIC shareholders can elect which tax regime to apply.
  • Recently proposed Treasury regulations would require any U.S. partner of a partnership that directly or indirectly owns a PFIC to make PFIC-related tax elections at the individual partner level, in addition to other changes.

Recommended Changes

PFIC Coalition logos

  • The April 25 coalition letter suggests the proposed rules would result in an exponential increase in the number of separate PFIC filings, greater administrative burdens and a higher cost of compliance. The rules would also lead to inadvertent failures to file elections since small investors are less well-versed in the PFIC rules than the investment partnerships and their advisors.
  • The letter also urges the IRS to allow partnerships to make PFIC elections at the entity level for all partners, including on behalf of indirect partners who own their interest through an upper-tier partnership. A partnership could make the election for a partner through a partner’s grant of a power of attorney to the general partner of the partnership. An implicit delegation of this authority (e.g., the authority in the partnership agreement to file tax returns) would be sufficient.
  • “If Treasury incorporates these changes,” said Real Estate Roundtable President and CEO Jeffrey DeBoer, “the end result will be less friction and expense for real estate funds as they raise and deploy capital for productive real estate investment.”

Other signatories of the letter include the Alternative Investment Management Association, the American Investment Council, the Managed Funds Association, and the S Corporation Association.

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Roundtable CEO Questions Wisdom of Administration’s Proposed Carried Interest Tax Increase

Posted on by Trey Jackson

Jeffrey DeBoer, Real Estate Roundtable President and CEO

This week, Real Estate Roundtable President and CEO Jeffrey DeBoer, above, challenged the Administration’s recently proposed budget, which would recharacterize nearly all real estate carried interest as ordinary income, in Bisnow, a prominent commercial real estate media outlet. (Bisnow, April 13) 

Taxing Carried Interest as Ordinary Income 

  • President Biden’s budget includes tax proposals recycled from last year that failed to pass congressional  negotiations, including taxing long-term capital gains at ordinary income rates – and taxing carried interest in real estate partnerships as ordinary income. (Roundtable Weekly, April 1) 
  • In Bisnow’s “Taxing Carried Interest as Ordinary Income: The Idea that Never Dies, but Never Becomes Law Either,” DeBoer noted, “The president’s carried interest budget proposal would, for the first time, limit capital gain tax treatment to the return on cash and cash-equivalent investment. This would ignore the reality that real estate owners and developers bear significant financial risks beyond their capital contribution.”
  • DeBoer added, “The capital gains tax incentive has always recognized and rewarded other factors beyond just invested cash, including the assumption of construction, litigation and market risk, as well as the sweat equity associated with owning investment real estate.“
  • Targeting tax evaders and illegal transactions is appropriate, DeBoer noted, but he emphasized that penalizing entrepreneurship and discouraging noncash risk-taking by recharacterizing all carried interest as ordinary income would be a mistake.
  • Proposals to recharacterize carried interest as ordinary income have been introduced in Congress perennially since 2007. The Tax Cuts and Jobs Act of 2017 included a provision extending the holding period requirement from one to three years for carried interest to qualify for the reduced long-term capital gains tax rate. 

Carried interest and other tax issues outlined in The Roundtable’s recently released 2022 Policy Agenda will be discussed during the April 25-26 Spring Meeting (Roundtable-level members only) in Washington DC.  

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Legislators Introduce Bipartisan Bill to Reform Opportunity Zone Incentives

Posted on by Abigail Grenadier
Senator Tim Scott interview on Opportunity Zones

Members of Congress introduced bipartisan, bicameral legislation yesterday to update and amend the Opportunity Zones (OZs) program. If enacted, the bill would extend expired OZ benefits, sunset certain high-income OZ census tracts, and apply additional information reporting requirements for opportunity funds and their investors. (Congressional news release, April 7)

OZ Reforms

  • The Opportunity Zones Transparency, Extension, and Improvement Act was introduced in the Senate by Tim Scott (R-SC), above, and Cory Booker (D-NJ) – and in the House by Ron Kind (D-WI) and Mike Kelly (R-PA). (Full text of the legislation | One-page summary | Section by Section).

  • The bill includes a Roundtable-requested, 2-year extension of the initial capital gains deferral period for prior gain that is rolled into an opportunity fund by an investor. (Roundtable Comment letters: Dec. 21, 2021 and May 14, 2020)

  • The 2-year extension, from the end of 2026 until the end of 2028, will allow OZ investors to benefit from a partial step-up in basis that reduces their tax liability on their prior gain if their opportunity fund investment is maintained for at least 5 years. The extension would help OZs continue attracting capital and investment that is boosting job growth and supporting the local tax base in these communities. 

  • Other provisions include a detailed process for sunsetting certain high-income census tracts from the OZ program; new information reporting rules for Opportunity Funds and investors; and creation of a $1 billion State and Community Dynamism Fund to support OZ projects and businesses in underserved communities.
Maryland Opportunity Zone event photo
  • Census tracts subject to the sunset provision include those with a median family income that exceeds 130 percent of the national median. The sunset includes transition rules that grandfather in existing and planned investments.

  • The information reporting proposals were previously introduced by Senator Scott in 2019. They aim to improve program transparency and facilitate improved tracking of the OZ investment outcomes in the designated communities. The Roundtable and other real estate organizations previously encouraged Congress to adopt enhanced OZ information reporting, data collection, and transparency measures. (Roundtable Comment letter: Dec. 21, 2021)

  • In the short time since their enactment, Opportunity Zones have created jobs and spurred billions of dollars in new investment in economically struggling communities. The Roundtable worked closely with Members of Congress and the Treasury Department to ensure OZ implementing regulations would facilitate the program’s success, and has long-supported OZ legislation that could spur greater investment, promote capital formation and bolster job growth in economically disadvantaged communities. (Roundtable Weekly: May 15, 2020 and  (Roundtable Comment letter: Dec. 21, 2021) 

In the current legislative environment, prospects for the new bill are uncertain, but it will likely be the basis for any serious consideration of OZ changes going forward.  

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Biden Administration Submits FY2023 Budget to Congress, Proposes Tax and Other Measures Impacting Real Estate

Posted on by Trey Jackson

Budget FY23 visual

The Biden administration on Monday released its $5.8 trillion FY2023 Budget, a package of spending, tax, and policy proposals that will face extensive congressional scrutiny and revisions over the coming months. The March 28 budget was accompanied by the Treasury Department’s “Greenbook,” which details the Administration’s $2.5 trillion in tax increases on corporations, high-earning households, and certain business activities, including real estate investment. (New York Times and BGov, March 29) 

Billionaire Minimum Income Tax 

  • The new budget proposes to tax the wealthiest households on their unrealized capital gains, including real estate. The so-called “Billionaire minimum income tax” would impose a minimum levy of 20 percent on a comprehensive tax base that includes both realized income and the unrealized annual appreciation of a taxpayer’s assets.
  • The new tax would apply to future appreciation of assets and all unrealized, built-in gains at the time of enactment. The tax on pre-enactment, built-in gains would be collected over a 9-year transition period.
  • Although marketed as a tax on “billionaires,” the proposal would apply to any taxpayer with $100 million or more in wealth. This initial high threshold arguably represents a first step towards a wealth tax regime with much broader application. The original income tax applied to the top 1/3 of one percent of the U.S. population and now applies to over 150 million American households.
  • In certain cases, holders of illiquid assets like real estate could elect to defer the minimum tax until the property is sold, provided they pay an additional charge.
  • The budget leaves many of the most difficult questions unanswered, including:
     

    • How would the tax survive a constitutional challenge on the grounds that direct taxes must be apportioned among the states by population?
    • Why would taxpayers continue to make patient, long-term investments, knowing that they could be taxed before the investment generates cash income?
    • Will much of the tax burden fall on noneconomic inflationary increases in asset values? 
    • How will the IRS administer the tax without building a highly intrusive compliance system that is based on subjective valuation measures?
  • Another new revenue proposal in the budget relates is to tax depreciation recapture at ordinary income rates. The provision generally would treat gain on real estate held for more than one year as ordinary income to the extent of cumulative depreciation deductions taken in tax years beginning after 2022. Depreciation recapture is currently taxed at a rate of 25 percent.

The White House with Washington Monument

  • The White House budget also includes tax proposals recycled from last year that failed to pass congressional budget negotiations, including:
    • repealing the deferral of gain from real estate like-kind exchanges;
    • taxing long-term capital gains at ordinary income rates;
    • taxing carried interest in real estate partnerships as ordinary income; and
    • treating transfers of property at death as realization events subject to capital gains tax.

Immediate Congressional Pushback

  • The spending and revenue proposals faced immediate pushback on Capitol Hill by Republicans and Democrats, including Sen. Joe Manchin (D-WV), a key centrist who stated he opposes President Biden’s 20% minimum tax on unrealized capital gains for households worth at least $100 million. (CQ News, March 29)
  • Manchin told The Hill, “You can’t tax something that’s not earned. Earned income is what we’re based on. Everybody has to pay their fair share, that’s for sure. But unrealized gains is not the way to do it, as far as I’m concerned.”
  • Manchin also recently stated he is open to negotiating some limited remnants of the defunct Build Back Better (BBB) Act, with a focus on energy-related incentives, prescription drug costs ,and deficit reduction. (Business Insider, March 24) 

Other Measures Directly Affecting Real Estate 

President Joe Biden

  • Biden budget proposals impacting other aspects of The Roundtable’s 2022 Policy Agenda include:
     

    • Energy and Climate – the president’s budget request outlines $44.9 billion for increased spending on several climate-related initiatives, yet does not address specific clean energy provisions that were part of last year’s BBB bill. Instead, a “deficit neutral reserve fund” is noted in the FY23 budget to accommodate a potential future deal on clean energy legislation with Democratic Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-AZ). (E&E News, March 28 and Axios Generate, March 29)
    • Affordable Housing – the FY23 budget seeks to ease the nation’s affordable housing shortage with $50 billion in federal funding for housing construction and supply, including $35 billion for state and local housing finance agencies. (PoliticoPro, March 28)
    • SEC Reporting Requirements – The Securities and Exchange Commission would receive $2.15 billion in the FY2023 budget proposal, an 11.4% increase from FY2021 (BGOV, March 28). The SEC has ramped up its activity recently with proposed rules on reporting requirements for investment advisers, climate risks and cybersecurity incidents that may have significant impacts for the real estate industry. 

Issues outlined in The Roundtable’s recently released 2022 Policy Agenda in the areas of tax, climate, capital and credit and cybersecurity will be discussed during the April 25-26 Spring Meeting (Roundtable-level members only) in Washington DC. 

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Roundtable Offers 2022 Tax Policy Overview in CBRE’s Market Outlook Podcast

Posted on by Trey Jackson

CBRE podcast visual

How national tax policies may affect commercial real estate and the outlook for market sectors were the focus this week of a CBRE podcast, “High Hopes: Why Commercial Real Estate Is Poised for Continued Growth in 2022” that included Roundtable Senior Vice President & Counsel Ryan McCormick. 

Tax Policy Issues  

  • McCormick emphasized that tax increase proposals affecting CRE could receive renewed attention in 2022 if the President, congressional leaders, and key centrist Democrats sit down to renegotiate major elements of the Build Back Better Act. (CBRE Podcast, Jan. 11)
  • “We started last year with a tremendous amount of potential change on the table, potential risks for real estate,” including “changes to the taxation of capital investment, capital formation, capital gains . . . pass-through rates and just rates generally,” McCormick noted.  In his initial budget, the President proposed “limiting like-kind exchanges, eliminating the step-up in basis of assets at death, and other changes,” he added.
  • As the process unfolded, according to McCormick, the real estate industry was able to demonstrate the negative impact these proposals “would have on not just real estate in particular, but local communities, local governments, property tax revenue at the state and local level and the jobs that flow from those industries and those services that are provided.” (CBRE Podcast, Jan. 11)
  • Congressional lawmakers, driven by the need to get the key approval vote of Sen. Joe Manchin (D-WV) in an evenly divided Senate, are likely to pare back the cost of the $1.75 billion BBB bill to restart negotiations.  (Roundtable Weekly, Jan. 7)
  • McCormick added, “The Build Back Better Act is hanging by a thread at this point, and it’s really going back to the drawing board. . . .  There’s a lot of different ways and directions things could take.  They could go small.  They could try to do something on a bipartisan basis.  I think the most likely scenario is they whittle back the Build Back Better Act further from where it is today. . . . [I]n many respects, we’re back where we started in 2021.”  

The SEC, OZs and SALT 

construction crane city background

  • The discussion also touched on the growing influence of ESG factors on the industry, including the expectation that the Securities and Exchange Commission (SEC) may release a proposed rule for reporting financial risks related to climate during the first quarter of this year. (Roundtable Weekly, Oct. 1, 2021)
  • McCormick expressed optimism that political support for Opportunity Zones, which have raised over $75 billion in capital since their enactment in 2017, would grow over time.  The Roundtable and other stakeholders recently urged Congress to extend deadlines for investors to qualify for OZ tax benefits.  On Thursday, Senate Finance Committee Chairman Ron Wyden announced an investigation into the impact of OZs on jobs and investment in low-income communities (Roundtable Weekly, Jan. 7; Wyden press release, Jan. 13)
  • The fate of the deductibility of state and local taxes (SALT) was also a topic in the CBRE podcast.  

Roundtable Speakers: Thune, Kerry and Summers 

Senator John Thune (R-SD) at podium

  • Tax policy in the new year will be a focus of The Roundtable’s Jan. 25 State of the Industry Meeting (remote) and its Tax Policy Advisory Committee (TPAC) meeting on Jan. 26.
  • Featured speakers at The Roundtable’s business meeting will include: Sen. John Thune (R-SD), the number two position in Senate Republican leadership;

    John Kerry, President Biden’s Special Envoy for Climate and former Secretary of State; and 

    Larry Summers, former Secretary of the Treasury and former Director of the White House National Economic Council. 

Looking Ahead 

CBRE-2022-report-cover

  • The Jan. 11 CBRE podcast – moderated by Spencer Levy, CBRE’s Global Chief Client Officer & Senior Economic Advisor and co-chair of The Roundtable’s Research Committee – also featured Richard Barkham, CBRE’s Global Chief Economist, Head of Global Research & Head of Americas Research. Barkham focused on the economic outlook and forecasts for capital markets and individual CRE sectors. (GlobeSt, Jan. 12)
     
  • CBRE’s recently released publication, U.S. Real Estate Market Outlook for 2022, projects a growing U.S. economy will fuel demand for space and increase real estate investment across all property types – despite uncertainty from the omicron variant and other risks. 

The Real Estate Roundtable’s Policy Agenda for 2022, scheduled for release at the end of this month, will address the tax issues above and several more of importance to CRE in the areas of infrastructure, sustainability, capital and credit, and homeland security. 

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Tax Proposals Under Scrutiny as Timetable Moves Up for Mammoth Reconciliation Bill

Posted on by Trey Jackson

The unanticipated commitment by Speaker Pelosi to allow a stand-alone vote on the bipartisan Senate infrastructure bill no later than September 27 has scrambled the Congressional calendar and put increased attention and focus on the potential for major tax changes.

Why It Matters

  • House Leaders are urging committees, including the powerful Ways and Means Committee, to complete their work on the $3.5 trillion budget reconciliation bill by September 15.  Ways and Means Chairman Richie Neal has indicated a formal mark-up could start the week of Sept. 6 and continue 4-5 days.  (E&E Daily, Aug. 25)
  • Accelerating the consideration of the $3.5 trillion reconciliation bill may allow its supporters and advocates to retain political momentum for the massive package of social safety net, environmental, tax, and other policies—momentum that could be lost once the infrastructure bill is sent to the President.
  • The shortened timetable, however, puts pressure on lawmakers who are considering complex changes to the tax code that would normally require hearings, extended debate, and substantial vetting.  

Industry Concerns

  • The Real Estate Roundtable has raised concerns regarding a number of proposals in the President’s plan that would raise the tax burden on capital formation, undermine property values and the functioning of real estate markets, and harm the industry’s ability to create jobs and support local communities through property tax revenue.  These proposals include restrictions on like-kind exchanges, an elimination of the reduced tax rate on capital gains, and the taxation of unrealized gains at death.
  • On Tuesday, the accounting industry expressed strong concerns with the President’s proposed changes to capital income. The letter noted that, “[t]he taxation of the capital gains on gift or death in many cases would be the third time that the gain is taxed.”  Imposing immediate tax on transfers by gift or death is an unreasonable requirement when the transfers are non-liquid assets such as real estate, business interests, etc., because it may require the forced liquidation of some or all of the assets transferred,” they continued.    
  • Last Friday, the Tax Foundation challenged the Administration’s claim that their tax proposals would spare 97 percent of small businesses.  The organization analyzed the most recent IRS data and concluded the President’s proposals would reach more than half of pass-through business income (because 54% of pass-through income is earned by taxpayers making more than $500,000).
  • At the same time, lawmakers are mobilizing to ensure that the $3.5 trillion bill includes priorities such as increased investment in affordable housing.  On Thursday, 111 House Democrats led by Reps. Suzan DelBene (D-WA) and Don Beyer (D-VA) wrote to Speaker Pelosi urging that the legislation include a significant expansion of the low-income housing tax credit.

Contact Congress

House Ways and Means Democrats Release Legislative Framework, Senate Finance Chairman Ron Wyden Will Pursue Capital Gains Changes

Posted on by Trey Jackson

Congressional tax-writing committees this week began unveiling their agendas for the 117th Congress, with Democrats poised to control the majority in the both House and Senate. [Photo: Senate Finance Chairman Ron Wyden (D-OR), left, and House Ways and Means Chairman Richard Neal (D-MA), right]

  • In the House, Ways and Means Committee Chairman Richard Neal (D-MA) on Jan. 11 released a 14-page legislative framework describes an agenda to address health and economic inequities in the United States, particularly those rooted in racial disparities. (Ways & Means news release, Jan 11)
  • The framework, entitled “A Bold Vision for a Legislative Path Toward Health and Economic Equity,” lays out the pillars and policy priorities that will steer the committee’s work in the new Congress.  The economic proposals focus on economic justice for workers, economic justice for children and families, retirement security, investment in communities, and environmental justice.
  • The committee’s staff report, “Something Must Change: Inequities in U.S. Policy and Society,” provides key context about committee members’ legislative priorities.
  • Specific proposals in the legislative framework include increasing the supply of affordable housing through the low-income housing tax credit; providing enhanced bond incentives to state and local governments to address environmental stressors; and expanding tax credits for families with children, child care expenses, higher education costs, and more.  
  • Chairman Neal writes in his foreword, “The framework we present here is Ways and Means Committee Democrats’ plan to make our nation a more just and equitable place. Some actions we can pursue almost immediately. Other advancements may take longer to become law. But inaction is not an option. Complacency cannot be tolerated.”

Senate Finance Committee

In the Senate, incoming Finance Committee Chairman Ron Wyden (D-OR) outlined his tax agenda during a Jan. 13 call with reporters, including plans to move forward with an increase in the corporate tax rate and major changes in the taxation of individual capital gains.

  • Wyden presented and released a detailed white paper outlining his plan to reform the taxation of capital gains in September, 2019.  (News Conference Video, Center for American Progress Action Fund, Sept. 12, 2019)
  • His proposal, entitled “Treat Wealth Like Wages,” would raise the top tax rate on capital gains (currently 20%) and create parity with the tax rate on wages and other ordinary income.  In addition, his plan would impose annual mark-to-market taxation of capital assets for taxpayers above certain income thresholds.  Both proposals represent dramatic departures from existing tax law. 
  • During this week’s press call, Wyden said, “If you are a nurse in America taking care of COVID patients, you don’t get to defer paying your taxes. If you’re a billionaire, you can defer, defer and defer some more and then pretty much never pay any taxes at all.” 
  • A mark-to-mark system would require taxpayers to pay tax on the annual appreciation of capital assets – regardless of whether the property has been sold and cash is available to pay the levy – or impose a “look-back charge” on illiquid assets when a sale occurs or certain revaluation events take place. It could greatly diminish the incentive to start a busines or invest in any asset with a long, productive life. Such a dramatic change in the basic rules for how capital is taxed could have severe unintended consequences for future economic growth and job creation. ( Roundtable Weekly, Sept. 13, 2019)
  • Wyden added he would also pursue raising the current 21% corporate tax rate and change the tax treatment of carried interest.
  • Any tax changes in the Senate will have to advance through a 50-50 chamber. How committees will work through their arrangements and procedures has yet to be determined by Senate Majority Leader Chuck Schumer (D-NY) and Minority Leader Mitch McConnell (R-KY) 
  • More details related to Senate and House leadership positions and their respective committees can be found on JDSupra’s “Welcome to the 117th Congress” (Jan. 8).

Sen. Ron Wyden is scheduled to speak with Roundtable members at the organiation’s upcoming State of the Industry business meeting on Jan. 26. Additionally, The Roundtable’s Tax Policy Advisory Committee meeting will address the 117th Congress’ tax agenda on Jan. 27 (all virtual).

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