Tag: FIRPTA

President Trump and Democratic Leaders Aim for $2 Trillion Infrastructure Package; Roundtable Recommends Policies to House Transportation Committee

Posted on by Trey Jackson

President Donald Trump and Democratic congressional leaders on Tuesday agreed to pursue a $2 trillion infrastructure package and meet again in three weeks to discuss possible revenue sources.

The Roundtable on April 29 submitted  infrastructure policy recommendations to House Committee on Transportation and Infrastructure Chairman Peter DeFazio (D-OR) and Ranking Member Sam Graves (R-MO).  

  • House Speaker Nancy Pelosi (D-CA) said after the White House meeting, “We did come to one agreement: that the agreement would be big and bold.”   Senate Minority Leader Chuck Schumer (D-NY) added,  “… now it’s up to the president and the White House to tell us how they pay for it.” (Associated Press, April 30)
  • Schumer stated in his Dec. 6, 2018 letter to the president there would be no deal on infrastructure without addressing climate change.  Schumer wrote that one of the policies that should be included in any infrastructure package should, “Provide permanent tax incentives for domestic production of clean electricity and storage, energy efficient homes and commercial buildings …” (Schumer’s letter to President Trump and  Washington Post op-ed).
  • House Committee on Transportation and Infrastructure Chairman Peter DeFazio (D-OR) also attended the April 30 White House meeting.  DeFazio’s committee held a Member’s Day hearing on the next day to share their infrastructure priorities. “While I continue to press my colleagues on the Committee on Ways & Means, House Leadership, the Senate, and the White House on a path forward on funding, this Committee must do its legislative work,” DeFazio stated in his opening remarks.
  • The Roundtable on April 29 submitted infrastructure policy recommendations to DeFazio and Ranking Member Sam Graves (R-MO).  Roundtable President and CEO Jeffrey DeBoer states in the letter, “We offer policy suggestions within your Committee’s jurisdiction to improve programs to repair and modernize the transportation and other systems upon which the U.S. economy depends.  We also suggest targeted changes to the federal tax code, requiring coordination with the Ways and Means Committee, to help pay for our nation’s infrastructure deficit.”  (Roundtable Infrastructure Policies letter, April 29)
  • DeBoer emphasized the goal of the policies is to offer “a holistic approach to modernize our aging infrastructure [that] will create American jobs, boost economic growth, address climate threats, and improve the quality of life in all regions of the country.” 

    The Roundtable’s key suggestion to help pay for infrastructure is to repeal the Foreign Investment in Real Property Tax Act  (FIRPTA) of 1980. Bipartisan FIRPTA repeal legislation ( H.R. 2210 ) was introduced in the House on April 10. (Roundtable Weekly, April 12) 

The Roundtable’s key suggestion to help pay for infrastructure is to repeal the Foreign Investment in Real Property Tax Act  (FIRPTA) of 1980.  FIRPTA imposes a discriminatory layer of capital gains tax on foreign investment-a tax burden that does not apply to any other asset class.  Repealing FIRPTA would serve as a market-driven catalyst to finance improvements in our nation’s infrastructure.  Bipartisan FIRPTA repeal legislation (H.R. 2210) was introduced in the House on April 10. (Roundtable Weekly, April 12).

Other infrastructure policies detailed in The Roundtable’s April 29 letter include: 

  • A beneficial, 10-year cost recovery period for investments that improve energy efficiency performance in commercial and multifamily buildings;
  • Proposals supported by Democratic and Republican administrations alike to streamline the permit process for infrastructure projects;
  • An increase in the federal gas “user fee” in a responsible and sustainable manner;
  • Revising IRS “volume caps” and other limitations on tax-exempt bonds;
  • Improving the TIFIA loan program to encourage more public-private partnerships to finance infrastructure; and
  • Reasonable federal-state cost share rules for grants to support mass transit projects of regional and national significance (like the NY-NJ Gateway program).

The Roundtable’s DeBoer discussed the role of public-private partnerships to develop infrastructure projects on CNBC’s Squawk Box  in June 2017.  (Roundtable Weekly, June 9, 2017)  

Ways and Means Chairman Richard Neal (D-MA) has indicated he intends for his committee to consider an infrastructure bill soon.

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Bipartisan FIRPTA Repeal Legislation Introduced

Posted on by Trey Jackson

Bipartisan legislation introduced on April 10 by Reps. John Larson (D-CT) and Kenny Marchant (R-TX) would repeal the Foreign Investment in Real Property Tax Act (FIRPTA) – a discriminatory capital gains tax on foreign investors in U.S. real estate.  (Legislative text of the Invest in America Act and one-page summary)

This week, Rep. John Larson (D-CT), above, and Rep. Kenny Marchant (R-TX)  introduced bipartisan legislation, Invest in America Act, that would repeal FIRPTA.

  • FIRPTA’s tax penalty does not apply to any other asset class except U.S. real estate.  The arcane tax, enacted in 1980, discourages capital formation and investment that could create jobs and improve U.S. real estate and infrastructure.  By repealing FIRPTA, the Invest in America Act (H.R. 2210) would unlock foreign capital for productive investment. 
  • Rep. Larson stated, “The American Society of Civil Engineers has given America’s infrastructure a D+ rating. That’s unacceptable. This isn’t a Republican or Democrat issue, this is an American issue. I am proud to introduce the Invest in America Act today with Congressman Marchant to unlock more opportunities to invest in communities in Connecticut and across the nation and to rebuild our infrastructure.”  (Larson-Marchant news release, April 10)
  • Rep. Marchant added, “I am proud to partner with Congressman Larson to introduce the Invest in America Act, which will remove the barriers in our tax code that discourage investments in real estate.  By providing parity to real estate assets under the law, foreign investors will be able to create more opportunities and more prosperity for American families.”
  • The Larson-Marchant bill (H.R. 2210) was introduced with a total of 11 original cosponsors from the tax-writing Ways and Means Committee who represent every major region of the country.  
  • In 2015, Congress passed meaningful reforms to FIRPTA, exempting foreign pension funds and doubling the amount a foreign interest may invest in a publicly traded U.S. REIT.  (Roundtable Weekly, March 18, 2016)

    A  report by the Rosen Consulting Group  (RCG) estimated that FIRPTA repeal would generate an initial increase of between $65 billion and $125 billion in international investment in U.S. commercial real estate.  

     

  • The Real Estate Roundtable and American Institute of Architects released a statement of support for the Invest in America Act yesterday.  RER President and CEO Jeffrey DeBoer said, “The FIRPTA regime is an anti-competitive outlier that deflects global capital to other countries.  Our infrastructure challenges demand a holistic approach and innovative solutions. Now is the time to build on the recent success of the 2015 reforms by eliminating FIRPTA outright and unlocking private capital for even more job growth and infrastructure improvements.”
  • The Roundtable and 19 national trade organizations wrote to Ways and Means Committee Members and other key House lawmakers on March 28, urging them to support the Invest in America Act.  (Coalition FIRPTA letter, March 28)

A report by the Rosen Consulting Group (RCG) estimated that FIRPTA repeal would generate an initial increase of between $65 billion and $125 billion in international investment in U.S. commercial real estate. This new level of activity would lead to the creation of 147,000 to 284,000 jobs throughout the economy and increase taxpayers’ income by $8 billion to $16 billion.  (Unlocking Foreign Investment in U.S. Commercial Real Estate, July 2017) 

 

Bipartisan lawmakers unveil “Invest in America Act”

Posted on by Trey Jackson

Legislation would spur American job creation and investment in U.S. communities, infrastructure and Opportunity Zones

 
(WASHINGTON, DC) — The American Institute of Architects (AIA) and The Real Estate Roundtable (RER) are pledging support for the “Invest in America Act” (H.R. 2210), which was unveiled yesterday afternoon by U.S. Reps. John Larson (D-CT) and Kenny Marchant (R-TX).
 
The legislation has the potential to create as many as 284,000 American jobs and attract as much as $125 billion in global investment in U.S. communities, which would support addressing America’s aging buildings and crumbling infrastructure. 
 
The legislation does so by repealing the “Foreign Investment in Real Property Tax Act” (FIRPTA). Originally enacted in 1980, FIRPTA is an arcane tax that deflects global capital from U.S. cities and towns by imposing a capital gains tax on global investors that finance any U.S. real property. Consequently, the law greatly inhibits state and local leaders from partnering with global investors—in addition to leveraging domestic partners—to improve their communities, including renovating aging buildings; constructing roads, bridges, tunnels, hospitals and airports; developing affordable housing; and utilizing new Opportunity Zones.
 
“Under current law, global investment is discouraged in the United States and investors are driven to other countries,” said AIA EVP/Chief Executive Officer Robert Ivy, FAIA. “This legislation will put the U.S. on equal footing in the competition for investment dollars, which can be put directly into American communities through partnerships with local and state governments. This will result in meaningful jobs not only for architects but other professionals in design and construction as well as manufacturing and service industries.”
 
A partial repeal of FIRPTA occurred in 2015 with passage of the “Protecting Americans from Tax Hikes Act.” Changes to the law increased global investment in U.S. cities of all sizes and locations by 33 percent, proving that a full repeal would have a significant benefit to many more state and local economies. 
 
“The FIRPTA regime is an anti-competitive outlier that deflects global capital to other countries,” said RER President and CEO Jeffrey DeBoer. “Our infrastructure challenges demand a holistic approach and innovative solutions. Now is the time to build on the recent success of the 2015 reforms by eliminating FIRPTA outright and unlocking private capital for even more job growth and infrastructure improvements.”
 
Learn more about the legislation by visiting the Invest in America Coalition’s website.
 

Bipartisan lawmakers unveil “Invest in America Act

Posted on by Trey Jackson

Legislation would spur American job creation and investment in U.S. communities, infrastructure and Opportunity Zones

 
(WASHINGTON, DC) — The American Institute of Architects (AIA) and The Real Estate Roundtable (RER) are pledging support for the “Invest in America Act” (H.R. 2210), which was unveiled yesterday afternoon by U.S. Reps. John Larson (D-CT) and Kenny Marchant (R-TX).
 
The legislation has the potential to create as many as 284,000 American jobs and attract as much as $125 billion in global investment in U.S. communities, which would support addressing America’s aging buildings and crumbling infrastructure. 
 
The legislation does so by repealing the “Foreign Investment in Real Property Tax Act” (FIRPTA). Originally enacted in 1980, FIRPTA is an arcane tax that deflects global capital from U.S. cities and towns by imposing a capital gains tax on global investors that finance any U.S. real property. Consequently, the law greatly inhibits state and local leaders from partnering with global investors—in addition to leveraging domestic partners—to improve their communities, including renovating aging buildings; constructing roads, bridges, tunnels, hospitals and airports; developing affordable housing; and utilizing new Opportunity Zones.
 
“Under current law, global investment is discouraged in the United States and investors are driven to other countries,” said AIA EVP/Chief Executive Officer Robert Ivy, FAIA. “This legislation will put the U.S. on equal footing in the competition for investment dollars, which can be put directly into American communities through partnerships with local and state governments. This will result in meaningful jobs not only for architects but other professionals in design and construction as well as manufacturing and service industries.”
 
A partial repeal of FIRPTA occurred in 2015 with passage of the “Protecting Americans from Tax Hikes Act.” Changes to the law increased global investment in U.S. cities of all sizes and locations by 33 percent, proving that a full repeal would have a significant benefit to many more state and local economies. 
 
“The FIRPTA regime is an anti-competitive outlier that deflects global capital to other countries,” said RER President and CEO Jeffrey DeBoer. “Our infrastructure challenges demand a holistic approach and innovative solutions. Now is the time to build on the recent success of the 2015 reforms by eliminating FIRPTA outright and unlocking private capital for even more job growth and infrastructure improvements.”
 
Learn more about the legislation by visiting the Invest in America Coalition’s website.
 

FIRPTA Repeal Bill Introduced; “Tax Reform 2.0” Mark-Up Next Week

Posted on by Trey Jackson

As House Republican leaders this week promoted a second round of tax cuts before the mid-term elections, Reps. Kenny Marchant (R-TX) and Joe Crowley (D-NY) introduced legislation yesterday to repeal the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). 

A recent report by the Rosen Consulting Group (RCG) estimated that FIRPTA repeal would generate an initial increase of between $65 billion and $125 billion in international investment in U.S. commercial real estate. 

  • FIRPTA subjects foreign investment in U.S. real property to a much higher tax burden than foreign investment in any other class of assets. As a result, overseas investors are often discouraged from investing in U.S. real estate.  FIRPTA effectively deters billions of dollars of capital that would strengthen U.S. infrastructure, expand the tax base and create much-needed domestic jobs.
  • The Marchant-Crowley Invest in America Act would build on FIRPTA reforms Congress passed in the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) by repealing FIRPTA altogether.  
  • The PATH Act exempted foreign pension funds from FIRPTA and increased the share of a publicly traded US REIT that a foreign investor can hold without triggering FIRPTA.  The PATH Act changes injected billions of dollars in foreign investment into the U.S. real estate market, and contributed to a spike in capital investment in many parts of the country.  (Roundtable Weekly – Oct 13, 2017)
  • A recent report by the Rosen Consulting Group (RCG) estimated that FIRPTA repeal would generate an initial increase of between $65 billion and $125 billion in international investment in U.S. commercial real estate. The report determined that repealing FIRPTA would generate between $26 and $49 billion in total economic activity — a boost of 10 to 30 basis points to U.S. GDP.  This new level of activity would lead to the creation of 147,000 to 284,000 jobs throughout the economy and increase taxpayers’ income by $8 billion to $16 billion.  RCG’s report concluded that repealing FIRPTA would not have a meaningful impact on the federal budget, as FIRPTA accounted for less than 0.002% of federal tax receipts from 2009 to 2013. (Unlocking Foreign Investment in U.S. Commercial Real Estate, July 2017)
  • FIRPTA reform is a long-standing goal of The Roundtable.  The economic benefits of a comprehensive FIRPTA repeal was a focus of testimony by Real Estate Roundtable President and CEO Jeffrey DeBoer before the U.S. Senate Finance Committee on Sept. 19, 2017.  (Roundtable Weekly) 

“In 2015, Congress passed the most significant reforms of FIRPTA since its passage in 1980.  Congress should build on the recent success by repealing FIRPTA outright as part of tax reform. Unleashed by FIRPTA’s repeal, capital from abroad would create jobs by financing new real estate developments, as well as the upgrading and rehabilitation of existing buildings. Architects, engineers, construction firms, subcontractors, and others would be put to work building and improving commercial buildings and infrastructure,” DeBoer testified.  (Roundtable Statement for the Record, Senate Finance Committee Sept 2017) 

Tax Reform 2.0

GOP leaders aiming to pass another round of tax reforms through the House before the November mid-term elections are planning next week to introduce “Tax Reform 2.0” legislation. The bill would make the individual tax cuts contained in President Donald Trump’s December tax overhaul permanent, while expanding taxpayer savings opportunities. 

House Ways and Means Committee Chairman Kevin Brady (R-TX) commented, “… next week we will introduce legislation to make permanent the small business and individual tax cuts that are driving these positive economic numbers. This investment into our workers will produce over a million and a half new jobs, continue to boost wages, and increase America’s competitiveness for years to come.”  (Accounting Today, Sept. 7). 
  • Today, House Ways and Means Committee Chairman Kevin Brady (R-TX) commented on the 2.0 legislation expected to be marked up by his committee next week while reacting to the U.S. Bureau of Labor Statistics’ August jobs report showing a gain of 201,000 jobs.
  • “August was another solid month of job growth, marking over 1.6 million jobs created this year and the highest level of wage gains since 2009. And we know we can do even better to continue creating greater financial security for our workers and Main Street businesses. That’s why next week we will introduce legislation to make permanent the small business and individual tax cuts that are driving these positive economic numbers. This investment into our workers will produce over a million and a half new jobs, continue to boost wages, and increase America’s competitiveness for years to come,” Brady said.  (Accounting Today, Sept. 7)
  • In July, Brady released a two-page framework for “Tax Reform 2.0” that would make individual and small business tax cuts.  Although last December’s Tax Cuts and Jobs Act made corporate tax cuts permanent, most provisions for individuals and pass-through businesses are set to expire at the end of 2025.  Yesterday, Ways and Means Committee Republicans released an updated outline of the Tax Cuts 2.0 package.
  • Bloomberg reported this week that House Majority Whip Steve Scalise stated, “We’re not resting on our laurels. We’re seeing this great economic growth, and so we’re starting to put together tax cuts 2.0.”  (Los Angeles Times, Sept. 5)

The central feature of the reform 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).  Additionally,  the introduction of a Tax Reform 2.0 bill may delay legislation addressing tax technical corrections until after the November elections. (Roundtable Weekly, July 20)

 

Real Estate Roundtable Testifies Before Senate on Business Tax Reform

Posted on by Trey Jackson

Rational Taxation of Real Estate Urged to Spur Job Creation, Encourage Business Expansion and Contribute to GDP Growth

WASHINGTON, DC — Real Estate Roundtable President and Chief Executive Officer Jeffrey DeBoer today testified before the U.S. Senate Finance Committee, encouraging modest changes to the current taxation of commercial real estate that would continue to encourage economic growth while cautioning policymakers on specific business tax reform concepts that could cause severe market dislocation.

During today’s Senate hearing on Business Tax Reform, DeBoer testified, “Importantly, commercial real estate markets are largely in balance with supply, only modestly exceeding demand.  Despite our industry’s relative positive health, we know the underlying economy can and should grow more rapidly.”  DeBoer added that The Roundtable is concerned that some concepts under discussion in tax reform are risky, untested and have the potential to cause severe dislocation – not only in real estate markets but in the nations’ capital markets as well.

In his written testimony and his oral statement, The Real Estate Roundtable’s President and CEO addressed specific elements of potential tax reform.  (See Senate Finance Committee webcast and documents at https://www.finance.senate.gov/hearings/business-tax-reform.) Below is a summary of policy issues covered in his testimony:

  • Business interest deduction.  DeBoer noted that interest, the cost of borrowing, is an ordinary and necessary business expense that has always been deductible.  Today, U.S. capital markets are the deepest in the world, but restrictions would deter business formation and expansion.  The impact would fall disproportionately on entrepreneurs and other developers likely to serve small and medium-sized markets.  As interest rates rise, the harm to the economy will grow.
  • Cost recovery / expensing.  Current cost recovery rules need reform, but 100 percent expensing of real estate is a risky and untested proposal.  Accelerated depreciation of real estate in the early 1980s led to tax-driven, uneconomic investment.  Tax rules should reflect the economic life of structures.  Leading research by MIT suggests existing depreciation schedules for real estate are too long.  Shortening depreciation to 20 years would spur sustainable and economically sound investment.   

     

  • Pass-through reform.  U.S. pass-through tax rules create a dynamic, flexible business environment that supports entrepreneurship and productive investment.  Tax reform should provide equitable relief for pass-throughs.  A new, reduced tax rate for pass-through business income should avoid “cliffs”, phase-outs, and carve-outs that discriminate against certain taxpayers and create new economic distortions.    

     

  • Capital gains.  The tax code should encourage entrepreneurial activity and risk-taking through low capital gains rates and continue to recognize that risk can involve more than the contribution of capital.  Reform should also preserve like-kind exchanges, which get properties into the hands of new owners with the time and resources to invest in job-creating property improvements.

     

  • State and local tax deduction.  Tax reform should retain the deductibility of state and local taxes.  Eliminating the state and local tax deduction would undercut the principal source of financing for schools, roads, law enforcement, and other needed infrastructure and public services.

     

  • FIRPTA.  Tax reform should boost job growth and domestic investment by repealing outdated tax barriers to foreign investment in U.S. real estate and infrastructure.

     

  • Infrastructure.  An infrastructure initiative in tax reform is needed to create jobs, reflect the changing transportation needs of Americans and increase productivity, all to benefit the GDP.  

In his testimony, DeBoer said that although tax reform should unleash entrepreneurship, capital formation, and job creation – Congress should also undertake reform with caution, given the potential for economic dislocation and unintended consequences. 

As an example of over-reactive government policies, DeBoer noted past tax reform efforts in 1981 and 1986, which combined, created severe dislocation in real estate markets nationwide; led to job losses and bankruptcies; and contributed to the demise of the savings and loan industry.

The Roundtable’s President and CEO also addressed the federal deduction for state and local property and income taxes. “Ending the federal deduction for state and local property and income taxes could potentially cause significant issues in our nation’s cities, as some businesses relocate for no reason other than taxes. We urge that this idea be rejected,” DeBoer said.

He also testified about the crucial need to preserve interest deductibility.  “Eliminating or limiting the deduction for interest on business debt would cause great dislocation in capital markets, slow economic activity and lessen the unique importance of America’s capital markets,” DeBoer said.

After noting that commercial real estate markets today are estimated to account for nearly 20 percent of America’s GDP and employ millions of Americans, he added that real estate provides local governments with its largest revenue source and plays a key role in the retirement savings and wealth creation of Americans.  “Properly designed tax reform can spur job creation, encourage more robust business expansion and result in a sustainable increase in GDP,” DeBoer testified.  

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