Tag: Opportunity Zones (OZs)

Real Estate Coalition Supports Affordable Housing Legislation

Posted on by Abigail Grenadier

On Tuesday, a coalition of national real estate associations, including The Real Estate Roundtable (RER), wrote to Congress urging support for the Renewing Opportunity in the American Dream to Housing Act (ROAD) to Housing Act, (S. 5027 | H.R. 990). Introduced by Senator Tim Scott (R-SC) and Representative French Hill (R-AR), this comprehensive legislation aims to make housing more affordable and widely available. (Letter, Dec. 10)

Addressing Housing Affordability

  • The nation faces a persistent housing affordability crisis rooted in a critical shortage of supply. Addressing this challenge requires bipartisan solutions that foster collaboration across government agencies, industry stakeholders, and policymakers.
  • The coalition praised the bill as “a step forward in addressing the root cause of housing affordability challenges—supply shortages.” (Letter, Dec. 10)
  • The key pillars of the bill are increasing access to affordable housing, promoting opportunity, incentivizing local solutions, and ensuring proper oversight and accountability over federal housing programs. (Sen. Scott Press Release, Sept. 12)
  • Rep. French Hill (R-AR) said, “With the ROAD to Housing Act, we are taking real steps toward creating a housing market that benefits everyone—renters, homeowners, and families striving for stability. I thank my friend Senator Tim Scott for spearheading this legislation in the Senate.” (Rep. Hill Press Release, Oct. 15)
  • The letter emphasized the importance of bipartisan collaboration in crafting sustainable, effective housing policy solutions.

ROAD to Housing Act

  • The ROAD to Housing Act introduces targeted reforms and initiatives, including:
  • Enhanced financial literacy and housing counseling: Empowering individuals with tools to navigate homeownership and rental markets.
  • HUD’s Moving to Work (MTW) program: Fully authorizing this initiative to improve housing outcomes for low-income families. The MTW program helps public housing authorities and agencies implement innovative solutions that support affordable housing goals
  • Boosting affordable housing construction: Encouraging development through construction grants and support for small-dollar mortgage lending.
  • Opportunity Zones focus: Promoting affordable housing projects in designated Opportunity Zones to drive investment in underserved areas.
  • Federal coordination: Establishing regular dialogue between federal agencies and Congress to align housing policies with on-the-ground needs.

The Roundtable and its coalition partners will continue to educate and collaborate with policymakers to advance the ROAD to Housing Act and ensure that housing supply and affordability remain top priorities.

CRE Industry Advocates for Tax Relief to Support Recovery and Stability

Posted on by Abigail Grenadier

As the U.S. commercial real estate sector enters a critical recovery period, industry leaders are urging policymakers to retain key tax policies from the Tax Cuts and Jobs Act of 2017 (TCJA), many of which expire at the end of 2025. (Reuters, Oct. 28)

Tax Landscape

  • The outcome of the November presidential election will play a critical role in shaping year-end tax bill discussions.
  • If either candidate secures the presidency and achieves unified control of Congress, they may urge their congressional allies to delay any tax negotiations until 2025.
  • The Roundtable is preparing for potential tax legislation in the lame-duck session, though action may be delayed until next year’s debate when major provisions in the TCJA expire. (Roundtable Weekly, Oct. 25)
  • In early October, RER submitted comments to Capitol Hill on the pending expiration of the TCJA and ways in which tax policy can support long-term investment, economic stability, and the creation of affordable housing. (Roundtable Weekly, Oct. 4)

Industry Advocacy

  • Speaking to Reuters, Real Estate Roundtable President and CEO Jeffrey DeBoer noted the difficult economic backdrop for real estate as the tax debate has gathered steam, “Over the last 18 months … operating costs have … risen dramatically at the same time the availability of capital and credit have diminished…. All of that creates stress and challenges in the CRE marketplace.” (Reuters, Oct. 28)
  • With the tax reform debate heating up in Washington, maintaining sound tax rules that both reflect the economics of real estate transactions and encourage capital formation is a priority for the CRE industry.
  • “Depreciation deductions and interest expense deductions. They’re not tax breaks. They’re the cost of doing business,” said Ryan McCormick (SVP & Counsel, RER) while discussing housing policy in Politico’s Morning Tax.  (Politico, Oct. 28)
  • RER Member Hessam Nadji (President & CEO, Marcus & Millichap) appeared on CNBC International Squawk Box this week and spoke on the upcoming elections, international investor re-engagement with U.S. CRE, zoning and private-public partnerships, and the impact of government policies, particularly regarding housing.

RER Tax Priorities

Roundtable tax priorities heading into 2025 include:

  • Capital formation and capital gains: Preserving key elements of the tax code (e.g., capital gains preference, like-kind exchanges, step-up in basis at death) that encourage productive real estate investment, risk-taking, and growth.
  • Strong partnership, pass–through, and entity choice rules: Extending tax provisions like section 199A that allow pass-through businesses to compete on a level playing field with public corporations.  
  • Affordable housing and community development incentives: Advocating for tax incentives tied to affordable housing, energy efficiency, Opportunity Zones, and commercial-to-residential conversions.
  • Removing barriers to job-creating foreign investment:  The tax system should avoid discriminatory policies that discourage job-creating foreign investment in US real estate and infrastructure.  

Tax Bill Negotiators to Watch

  • Sen. Mike Crapo (R-ID): If Republicans take control of the Senate, Crapo is poised to lead the Senate Finance Committee in 2025. Given his influence over Senate Republicans, many of whom followed his opposition to this year’s bipartisan tax bill, Crapo’s stance on a year-end tax deal will be pivotal.
  • Sen. Ron Wyden (D-OR): Wyden has shown a willingness to strike deals, as evidenced by his work with Rep. Smith on this year’s agreement. He might be eager to pass as much of that legislation as possible during the lame-duck session.
  • Rep. Jason Smith (R-MO): As chair of the House Ways and Means Committee, Smith’s perspective will be highly influential in the lame-duck session, with Republicans still holding the House majority.

The Roundtable is committed to working with lawmakers to ensure the U.S. maintains a competitive tax code that encourages capital formation, rewards entrepreneurial risk-taking, and supports critical policy objectives, including accessible and affordable housing and safe and healthy communities.

The Roundtable Shares 2025 Tax Legislative Agenda with Lawmakers

Posted on by Abigail Grenadier

Responding to a request for input from the chairs of the House Ways and Means Committee and Ways and Means Tax Policy Subcommittee, The Real Estate Roundtable submitted comments on the pending expiration of the Tax Cuts and Jobs Act of 2017 and ways in which tax policy can support long-term investment, economic stability, and the creation of affordable housing. (Letter, Oct. 2)

Roundtable Recommendations

The letter from Roundtable President and CEO Jeffrey DeBoer urges lawmakers to ensure that any major tax legislation in 2025 retain or include:

  • The reduced tax rate on long-term capital gains. The capital gains rate is critical for driving long-term real estate investment and fostering job creation. Raising capital gains rates, taxing unrealized gains, or double-taxing gains at death would deter entrepreneurship, increase costs, and reduce economic mobility.
  • Tax fairness for partnerships and pass-through entities. Half of the nation’s tax partnerships are real estate-related, making these provisions vital to the industry’s success.  Section 199A, which provides a 20% deduction on pass-through business income (including REIT dividend income), allows privately held businesses to compete on a level playing field with large corporations.
  • Like-kind exchanges. Section 1031 allows for the deferral of capital gains through real estate exchanges and helps gets languishing properties into the hands of new owners who will invest in, and improve, them.  Retaining section 1031 is vital to promoting reinvestment in communities, creating opportunities for minority and small business owners, and improving struggling properties.
  • Tax rules that encourage, rather than deter, foreign investment in U.S. real estate. Targeted changes to the outdated and discriminatory Foreign Investment in Real Property Tax Act (FIRPTA) could unlock capital for large-scale real estate and infrastructure projects that create jobs and spur economic development.
  • Incentives for affordable housing, energy efficiency, and community revitalization. The Roundtable supports expanding the low-income housing tax credit (LIHTC), improving the real estate-related clean energy tax provisions in the Inflation Reduction Act, and introducing new incentives for the conversion of obsolete commercial buildings into affordable housing. The letter also calls for a long-term extension of Opportunity Zone (OZ) tax incentives and preserving carried interest tax rules that recognize and reward sweat equity with capital gains treatment.

The Roundtable is committed to working with lawmakers to ensure the U.S. maintains a competitive tax code that encourages capital formation, rewards entrepreneurial risk-taking, and supports critical policy objectives, including accessible and affordable housing and safe and healthy communities.

Roundtable and Industry Coalition Urge Congress to Enact Affordable Housing Policies and Incentives

Posted on by Abigail Grenadier
Housing Coalition April 29, 2024 joint letter to Congress

This week, The Real Estate Roundtable and a broad real estate industry coalition encouraged lawmakers to pursue bipartisan solutions that would increase the supply of affordable and market-rate housing through specific policies and programs to help communities meet their housing challenges. (Coalition letter, April 29)

Legislation and Programs

  • The coalition letter to Congress and the Biden administration detailed policy solutions to help develop and preserve housing at all price points by enacting industry-supported bills in the House and Senate, encouraging incentive-based programs, streamlining regulatory burdens, and supporting public-private partnerships.
  • The specific proposals detailed in the letter will work best when paired with state and local government policies to meet the demand for rental homes.
  • Specific policies outlined in the letter would streamline and fast-track the entitlement and approval process; provide density bonuses and other incentives for developers to include workforce units in their properties; and enable “by-right” zoning and create more fully entitled parcels.
  • Other programs and bills defer taxes and other fees for a set period of time; lower construction costs by contributing underutilized buildings and raw land; create incentives to encourage higher density development near job and transportation hubs; and expand and strengthen the Low-Income Housing Tax Credit (LIHTC) program. Legislation would also encourage Yes In My Backyard (YIMBY) policies to remove discriminatory land use policies and other barriers that depress housing production.
  • Among the key bills strongly supported by the coalition are the Affordable Housing Credit Improvement Act (S.1557 & H.R.3238), Workforce Housing Tax Credit Act (S.3425 & H.R.6686), and Revitalizing Downtowns Act (S. 2511 & H.R.419). 
  • The coalition expects the Opportunity Zones program to spur the production of new multifamily housing, but to maximize its effectiveness, the industry groups recommend Congress revitalize and enhance Opportunity Zones to incentivize rehabilitation of housing units.

Biden Administration Proposals

The White House
  • The coalition described the Biden Administration’s Housing Supply Action Plan as a thoughtful proposal that rightly acknowledges that there is no single solution to the housing shortage. The letter also expressed support for several proposals included in the President’s FY25 federal budget proposal, including proposals to expand and enhance the LIHTC, the Neighborhood Homes Credit, and increased funding for the HOME Investment Partnerships Program.
  • However, the coalition also urged Congress to reject certain tax proposals included in the administration’s FY25 budget, such as increases in the capital gains rate. These policies would directly impact the operations of housing providers, as most are structured as “flow-through” entities where earnings are passed through to owners who pay taxes at the individual level. The tax increases under consideration would reduce real estate investment and inhibit the capital flows that are so critical to the development and preservation of critically needed housing. 

It is unlikely that new housing or tax-related legislation will be enacted before the November presidential election. Proposals now under consideration may have better opportunities for advancement in a post-election lame-duck session or during a new Congress in 2025.

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House Lawmakers Reintroduce Legislation to Extend and Reform Opportunity Zone Incentives

Posted on by Abigail Grenadier
Rep. Mike Kelly (R-PA) speaking on the House floor

Bipartisan legislation introduced this week by a group of House policymakers would update and amend the Opportunity Zones (OZs) program. The Roundtable-supported bill (H.R. 5761), if enacted, would extend the tax deferral date for OZ investments from the end of 2026 to the end of 2028, expand transparency and reporting requirements, and authorize investment structures that permit an Opportunity Fund to own and operate multiple real estate assets. (House OZ bill text)

Roundtable Support

  • Reps. Mike Kelly (R-PA), above, —chairman of the Ways and Means Subcommittee on Tax—along with Dan Kildee (D-MI), Carol Miller (R-WV), and Terri Sewell (D-AL) introduced the bill on Sept. 27. The bill is similar to legislation (H.R. 7467 and S. 4065) introduced in the last Congress. (Rep. Kelly news release, Sept. 29)
  • Roundtable President and CEO Jeffrey DeBoer welcomed the Opportunity Zones Improvement, Transparency, and Extension Act. “Opportunity Zones have delivered on their promise to create new economic opportunities in low-income communities. Real estate developments spurred by the Opportunity Zone tax incentives are expanding the supply of affordable housing and creating vibrant commercial centers where small businesses can reside, jobs can grow, and the local tax base can expand.” 
  • “Unfortunately, certain OZ incentives have already expired. The new legislation would strengthen the program’s integrity and ensure Opportunity Zone investment continues into the future. Congress should act quickly to enact these measures,” said DeBoer.

2023 OZ Reforms

  • The OZ program, created in the Tax Cuts and Jobs Act of 2017, designated low-income census tracts where qualifying investments are eligible for reduced capital gains taxes, channeling investment into areas prioritized by states and local communities.
  • This week’s legislation includes a 2-year extension of the initial capital gains deferral period for prior gain that is rolled into an opportunity fund by an investor. (Legislative text for H.R. 5761 | 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 five years.
  • Additionally, the bill would facilitate fund-of-fund investment structures that allow opportunity funds to own and operate efficiently more than one asset. Similar to traditional real estate funds, the structure would allow an opportunity fund to sell a property and reinvest the proceeds in another qualifying Opportunity Zone investment without triggering a taxable event for the fund’s underlying investors, provided the investors themselves have not disposed of their interest.  
  • Other provisions would establish robust OZ reporting requirements, mandate Treasury to produce certain studies and reports on the OZ program, sunset high-income OZs, and create a new $1 billion fund for states to support business activities in OZs

Prospects for the 2023 bill are uncertain, but the legislation is a likely candidate for consideration if, and when, House and Senate Leaders sit down to negotiate an end-of-year tax package that focuses on expired provisions—such as the expanded child tax credit, the expensing of R&D costs, and bonus depreciation. 

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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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Real Estate Roundtable and Other Stakeholders Urge Congress to Extend Expiring Opportunity Zone Tax Incentive Deadlines

Posted on by Trey Jackson

IRS OZ image

Congress should extend expiring tax incentives that promote investment and jobs in Opportunity Zones (OZs) as soon as possible, according to a letter to Congressional leaders from a diverse coalition of 22 organizations that includes The Real Estate Roundtable. (Dec. 21, 2021 coalition letter) 

OZ Tax Incentives Expiration 

  • Established in the Tax Cuts and Jobs Act of 2017, OZs mobilize capital for new businesses and economic activities in targeted, low-income areas. A significant share of OZ investment has gone towards productive real estate projects that create new, sustainable sources of local tax revenue and increase the supply of affordable and senior housing.
  • Taxpayers that invest existing capital gains in a qualified opportunity fund are potentially eligible for tax benefits on both the prior gain and any gains that relate to the opportunity fund’s investments. However, the deadline for OZ investments to qualify for a partial capital gains exclusion with respect to gains that are deferred and rolled into an opportunity fund expired on December 31, 2021. 
  • Specifically, in order for an investor to qualify for a 10 percent step-up in the basis of a prior investment, the gain must be held in an opportunity fund for five years before it is recognized and tax. Under the OZ law, gains rolled into an opportunity fund are recognized at the end of 2026. Therefore, unless the gain was invested in an opportunity fund by then end of 2021, it will be taxed prior to meeting the five-year requirement.
  • The coalition letter urges Congressional leaders to extend the 10 percent step-up deadline through the end of 2023 and the deferred gain recognition date until the end of 2028. 

OZ Impact 

OZ image construction

  • The coalition letter noted that the White House Council of Economic Advisors in 2020 estimated Opportunity Funds had raised $75 billion in private capital in the first two years following the incentives’ enactment. The Council also estimated this capital could lift one million people out of poverty and decrease poverty in OZs by 11 percent.  (The Impact of Opportunity Zones: An Initial Assessment, Aug. 2020)
  • More recently, the U.S. Government Accountability Office estimated that 6,000 opportunity funds with more than 18,000 partners or shareholders invested $29 billion in OZs in 2019. (GAO: Opportunity Zones: Data on Investment Activity) 

OZ Program Improvements 

  • The coalition also supports congressional improvements to OZ tax incentives, such as enhanced information reporting, data collection, transparency, and lowering the substantial improvement threshold to cover a broader range of real estate rehabilitation and redevelopment projects.
  • Congressional tax-writing committees have not taken up bipartisan legislative proposals to improve the OZ program. 

The Roundtable’s Tax Policy Advisory Committee (TPAC) will discuss the OZ tax incentives and other real estate-related tax policies during their next meeting on Jan. 26 in conjunction with The Roundtable’s State of the Industry business meeting.  

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IRS Issues Pandemic-Related Relief for Opportunity Zone Investors and Funds

Posted on by Trey Jackson

The Internal Revenue Service (IRS) yesterday issued broad relief for Qualified Opportunity Zone Funds and their investors in response to the ongoing COVID-19 pandemic.  (IRS news release, June 4)

IRS Notice 2020-39 includes five helpful changes and clarifications to the current rules governing the capitalization and operation of opportunity funds.  The Roundtable’s Opportunity Zone Working Group has strongly supported greater flexibility in the Opportunity Zone rules to ensure that capital investment continues to flow to hard-hit, low-income communities during the economic crisis brought about by COVID-19.

Under the new guidance:

  1. if the 180-day investment period to roll gain into an opportunity fund would have expired between 4/1/20 and 12/31/20, the deadline is now extended to 12/31/20;
  1. if an opportunity has a compliance date for the 90% investment asset test that falls between 4/1/20 and 12/31/20, failure to comply is automatically excused under the reasonable cause exception;
  1. the 30-month substantial improvement period for real property owned by an opportunity fund or opportunity zone business from 4/1/20 through 12/31/20 is disregarded;
  1. the IRS has clarified that the working capital safe harbor for opportunity fund working capital assets is extended under the President’s emergency declaration by 24 months (for a total period of 55 months) if the working capital is held by the fund before 12/31/20 and the other requirements for the safe harbor are met; and
  1. the 12-month period for an opportunity fund to reinvest proceeds from the return of capital or disposition of property is extended by an additional 12 months if the original period included 1/20/20, the date of FEMA’s major disaster declaration and other requirements are met.

Additionally, the IRS has updated their Qualified Opportunity Zones Frequently Asked Questions.

  • The Roundtable and a broad coalition of real estate organizations continue to support more significant enhancements to Opportunity Zones that would require congressional action.
  • The 11-member industry coalition urged members of Congress on May 14 to consider Opportunity Zones (OZ) rule changes that could spur investment, promote capital formation and bolster job growth in economically disadvantaged communities impacted by the coronavirus pandemic.  (Coalition letter)
  • The IRS changes this week come not long after the coalition’s letter, and several regulatory recommendations made by Sen. Tim Scott (R-SC) and eight other Senate Republicans on May 4 in a letter to Treasury Secretary Mnuchin and IRS Commissioner Charles Rettig.  (Roundtable Weekly, May 8)

The Roundtable’s Tax Policy Advisory Committee will discuss Opportunity Zone guidance and other tax relief resulting from the COVID-19 pandemic during the first Virtual Roundtable Annual Meeting on June 12.

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Industry Coalition Urges Congress to Consider Opportunity Zone Rule Changes to Spur Investment in Hard-Hit Communities

Posted on by Trey Jackson

An 11-member industry coalition, including The Real Estate Roundtable, urged Members of Congress on May 14 to consider Opportunity Zones (OZ) rule changes that could spur investment, promote capital formation and bolster job growth in economically disadvantaged  communities impacted by the coronavirus pandemic.  (Coalition letter, May 14)

  • Opportunity Zones seek to stimulate jobs and growth where they are most needed by encouraging taxpayers to make long-term, patient investments in targeted, low-income communities.  On Thursday, Federal Reserve Chairman Powell reported that “among people who were working in February, almost 40 percent of those in households making less than $40,000 a year had lost a job in March.” (Chairman’s Prepared Remarks, May 13)
  • The coalition letter asks Congress to make three critical improvements to the Opportunity Zone incentives.  The changes would:
  • Allow opportunity funds to raise capital from all sources, not just gain rolled over from a recently disposed investment.
  • Spur productive real estate investment in low-income communities by providing that a 50 percent increase in the basis of a building constitutes a substantial improvement of the property.
  • Strengthen the economic incentives by codifying the tax rate on deferred gain and extending for two years the recognition date for deferred gain, and consequently, the deadlines that must be met in order to qualify for the increase in basis for gain rolled into an opportunity fund.
  • The coalition’s legislative suggestions come not long after Sen. Tim Scott (R-SC) and eight other Senate Republicans made several regulatory Opportunity Zone recommendations on May 4 in a letter to Treasury Secretary Mnuchin and IRS Commissioner Rettig.  (Roundtable Weekly, May 8)
  • The Senators encouraged 10 specific changes in their letter, which states, “Significant challenges arise from the inability to raise capital; decreased demand for space, products and services; a decline in the local economy; governmental delays; supply chain interruptions; and uncertainty regarding valuations and ability to secure loans and necessary funding apart from Opportunity Zone capital gain investments.”

The role of investment in Opportunity Zones may be addressed in eventual Covid-19 stimulus legislation in Congress.  The Roundtable’s Tax Policy Advisory Committee (TPAC) will continue to collect and share information regarding with policymakers regarding the real estate industry’s experience with the Opportunity Zone tax incentives and the impact on low-income communities of real estate-focused opportunity funds.

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IRS Grants REITs Pandemic Relief; Lawmakers Challenge Tax Rules for PPP Loans and Request Greater Flexibility for Opportunity Zones

Posted on by Trey Jackson

Several tax policy issues affected by the coronavirus pandemic were the focus of policymakers’ attention this week in Washington, including:

Regulatory Relief for REITs

  • The IRS on March 4 granted relief with respect to distributions that publicly traded REITs must make to their shareholders in order to retain their single-level, preferred tax treatment.   The new guidance temporarily lowers the minimum percentage of shareholder dividends from these investment vehicles that must be made in cash from 20% to 10%.   The agency granted similar relief during the 2008 financial crisis.   
  • IRS Revenue Procedure 2020-19 is effective for distributions made by REITs on or after April 1, 2020 and on or before December 31, 2020.  According to the IRS, the guidance was issued to enable REITs to conserve capital and thereby enhance their liquidity.
  • Nareit wrote to the Treasury Department on March 8 seeking the change.  “The current COVID-19 has significantly impacted all REITs, but most severely in the lodging, retail, and health care sectors.  Many REITs have reduced their dividends because the rents they expect to receive are declining dramatically because of the restrictions put in place or suggested by federal and state authorities,” according to Nareit’s letter. 

Congress Challenges Treasury on Tax Aspects of PPP Loans

  • Congressional leaders are questioning a recent notice from the IRS prohibiting taxpayers from deducting business expenses paid with loans from the $670 billion Paycheck Protection Program if the loans are subsequently forgiven (see IRS Notice 2020-32, April 30).
  • The chairmen of the House and Senate tax-writing committees sent two letters this week to Treasury Secretary Steve Mnuchin urging him to reconsider the Department’s interpretation, which significantly reduces the economic benefit of the loan forgiveness for the borrower.  

  • House Ways and Means Chairman Richard Neal (D-MA), Senate Finance Chairman Chuck Grassley (R-IA) and Sen. Ron Wyden (D-OR), the Finance panel’s top Democrat, wrote that Treasury and the IRS’ position defies lawmakers’ intentions when they passed the CARES Act.  “We believe the position taken in the Notice ignores the overarching intent of the PPP, as well as the specific intent of Congress to allow deductions in the case of PPP loan recipients,” the lawmakers stated in their letter to Sec. Mnuchin. 
  • Yesterday, Treasury responded to the lawmakers’ May 5 letter, acknowledging the agency guidance (Notice 2020-32), and that it would “follow up” with Grassley’s office on the matter.  
  • Additionally, Sen. John Cornyn (R-Texas) on May 6 led a group of Senators in introducing the Small Business Expense Protection Act, which would clarify the PPP so small businesses can deduct expenses paid with a forgiven PPP loan from their taxes. 

Covid-19 Relief for Opportunity Zones

  • Sen. Tim Scott (R-SC) and eight other Senate Republicans wrote to Treasury Secretary Mnuchin  and IRS Commissioner Rettig on May 4 asking Treasury Department and the IRS to consider several regulatory recommendations aimed at providing flexibility to Opportunity Zone businesses and investors in response to the coronavirus pandemic.   
  • National estimates show approximately $67 billion has been pledged towards investments in Opportunity Zones, with $10 billion in equity already raised.  (Sen. Scott news release.  May 4)    
  • The Senators are encouraging 10 specific changes in their letter, which states, “Significant challenges arise from the inability to raise capital; decreased demand for space, products and services; a decline in the local economy; governmental delays; supply chain interruptions; and uncertainty regarding valuations and ability to secure loans and necessary funding apart from Opportunity Zone capital gain investments.”
  • The May 4 letter continues, “Relief focused on giving stakeholders, projects, and businesses additional time and flexibility to meet Opportunity Zone requirements, timelines, and thresholds will enable Opportunity Zone businesses to weather the storm and be part of the robust post-COVID economic recovery.” 

The Roundtable continues to be a strong supporter of the Opportunity Zones program as a powerful catalyst for transformational real estate investment in designated low-income areas.

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