Tag: Tax Policy

Senate Hearings Focus on Clean Energy and Tax Policy, Climate Bank

Posted on by Trey Jackson

Senate Finance Committee Chairman Ron Wyden (D-OR)

Senate hearings this week indicate that clean energy financing and tax policies considered in the current Congress might significantly affect commercial real estate. (Tax Notes, April 29)

Senate Finance Focus

  • Senate Finance Committee Chairman Ron Wyden (D-OR), photo above, opened an April 27 hearing by noting how President Biden’s goal of cutting carbon emissions in half by 2030 is driving clean energy policy. Wyden stated, “The reality is, a debate on energy and transportation is largely a debate on tax policy. That puts this committee in the driver’s seat when it comes to job-creating legislation that addresses head-on the existential challenge of the climate crisis.”
  • Sen Wyden also remarked about legislation he introduced last week – the Clean Energy for America Act, which would revamp tax incentives directed at buildings, electricity and transportation. Among other things, the bill would reform the 179D deduction for energy efficient commercial and multifamily buildings – with the value of the incentive increasing as more energy is conserved. (Text of the legislation, one-page summary of the bill and a section-by-section summary.)
  • Committee Ranking Member Sen. Mike Crapo during his opening remarks noted draft legislation that he unveiled the day before with committee member Sheldon Whitehouse (D-RI) – the Energy Sector Innovation Credit (ESIC) Act. ESIC is an incentive that would “target tax credits for innovative clean energy technologies,” Crapo said. (SFC news release).

E-QUIP Accelerated Depreciation

HVAC equipment

  • Separately, a broad coalition of environmental, manufacturing, and real estate groups led by The Roundtable supports the E-QUIP Act (H.R. 2346), which proposes “accelerated depreciation” for high-performance equipment installed in commercial and multifamily buildings. The coalition is urging policymakers to include this measure as part of any “green tax” package that may be folded into larger infrastructure spending legislation. (Roundtable Weekly, April 2)
  • Roundtable President and CEO Jeffrey DeBoer emphasized an important distinction between the energy incentives affecting CRE. “All building owners are intensely focused on operations and technologies to reduce energy consumption. Yet the policy discussions in Washington frequently don’t reflect the reality of these efforts to make commercial real estate properties more sustainable. It is retrofitting the existing building stock, not new construction, where energy savings and policy incentives are most challenging.” DeBoer said.
  • He added, “The 179D incentive fails to reflect the diverse vintage and tenant base in buildings. The E-QUIP incentive accommodates existing buildings by targeting the addition of high-performance, energy saving components. Combining the two incentives would make most sense.” 

National Climate Bank

Senator Chris Val Hollen (D-MD)

  • The Senate Environment and Public Works Climate Subcommittee on April 27 held a “Legislative Hearing on S.283, National Climate Bank Act” focused on how a national climate bank, also known as an “energy accelerator,” would invest in renewable energy technology.
  • Sen. Chris Van Hollen (D-MD), photo above, co-author of S. 283 with Subcommittee Chairman Sen. Ed Markey (D-MA), testified at the hearing, “… we need a National Clean Energy Accelerator … so we can turbocharge private investment, fortify our energy grid, and create millions of clean energy jobs – including in those communities where fossil fuel plants have closed.”
  • Van Hollen’s legislation is supported conceptually by President Biden’s American Jobs Plan, which recommends a $27 billion “accelerator” financing platform to mobilize private investment into building retrofits and other clean energy projects.

  • White House National Economic Council Director Brian Deese recently discussed the creation of a climate bank in an interview with Roundtable President and CEO, Jeffrey DeBoer for The Roundtable’s April 20 Spring Meeting. (Roundtable Weekly, April 23).

Additionally, the White House on April 27 announced policy actions to advance the expansion and modernization of the energy grid. National Climate Advisor Gina McCarthy noted, “After the Texas transmission debacle this winter, no one can doubt the need to invest in our electric grid. The steps that the Departments of Energy and Transportation are taking today, when combined with the grid investments outlined in the American Jobs Plan, will turbocharge the building of major new electricity transmission lines that will generate new jobs and power our economy for years to come.”

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Congressional Progressives Propose Legislation to Tax Unrealized Gains at Death as Republican Bill Seeks Permanent Repeal of Federal Estate Tax

Posted on by Trey Jackson

Sen. Chris Van Hollen (D-MD)

Several progressive members of Congress, led by Senator Chris Van Hollen (D-MD), above, on March 29 proposed legislation that would tax appreciated and unrealized capital gains when property is transferred at death or by gift. Meanwhile, Senate Republicans on March 9 reintroduced legislation to repeal permanently the federal estate and gift tax, commonly known as the “death tax.” (Wall Street Journal, March 29 and Fox Business, March 11).

Stepped-Up Basis

Why It Matters

Philadelphia, PA skyline

  • Repealing stepped-up basis and treating death as a taxable event would be particularly burdensome for real estate owners because of the illiquid and indivisible nature of real assets relative to a holdings like a portfolio of publicly traded stock. 
  • The legislation could force owners to sell properties if no cash income is available to pay the tax.  The bill would also pull capital out of real estate markets at a time when it will be needed to help repurpose existing properties in the post-pandemic era. 

Estate Tax Repeal 

  • Senate Republicans on March 9 unveiled the Death Tax Repeal Act of 2021 (S. 617) to permanently repeal the federal estate tax. The legislation, introduced by Sens. John Thune (R-SD.) and John Kennedy (R-LA) would eliminate the federal tax levied on estates worth more than $11.7 million after the death of the owner. (Sen. Kennedy news release)
  • Reps Jason Smith (R-MO) and Sanford Bishop (D-GA) on March 10 introduced companion legislation in the House. (Rep. Smith news release)
  • The Real Estate Roundtable, as part of the Family Business Estate Tax Coalition (FBETC), this week wrote to Sen. Thune and the House co-sponsors in support of S. 617 and the permanent repeal of the estate tax. (Coalition letter, April 2) 
  • The letter states that the FBETC “… supported the temporary estate tax relief in the Tax Cuts and Jobs Act (TCJA), which doubled the exemption to approximately $11.7 million for tax year 2021 and indexed future increases for inflation through 2025. However, without further congressional action, the temporary increase in the exemption amount will expire… repeal is the best solution to protect all family-owned businesses from the estate tax.” 

Proposals to raise the tax burden on appreciated property at death could be considered in the next wave of domestic economic legislation.  President Biden is expected to roll out more tax proposals aimed at upper-income taxpayers over the next few weeks. 

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Bipartisan House Bill Encourages Equipment Upgrades in Commercial and Multifamily Buildings

Posted on by Trey Jackson

Capitol Dome Stormy weather

Roundtable-supported legislation that would accelerate depreciation for high performance upgrades in commercial and multifamily buildings – creating jobs and reducing the built environment’s carbon footprint – was reintroduced this week by House Ways and Means Committee members Brad Schneider (D-IL) and Tom Rice (R-SC).

The E-QUIP Approach

  • The bipartisan Energy Efficient Qualified Improvement Property (E-QUIP) Act (H.R. 2346), originally introduced last December by Reps. Schneider and Rice, encourages energy efficiency building retrofits to replace aging and obsolete HVAC, lighting, windows, roofs, and windows with state-of-the-art systems.
    • The Real Estate Roundtable has rallied a unique coalition of environmental, manufacturing, and business groups to support the bill. The coalition sent an April 1 letter to members of the House Ways and Means Committee, and the Energy and Commerce Committee, to enact the E-QUIP Act and include it in any infrastructure package.
    • Roundtable President and CEO Jeffrey DeBoer stated, “The E-QUIP Act checks all of the boxes for smart energy, climate, and economic policy. Installation of high performance HVAC, lights, windows, and other building components will modernize aging buildings, save businesses billions of dollars on their energy bills, create tens of thousands of jobs, and avoid carbon emissions equal to taking 22 million cars off the road for a year.”
    • DeBoer added, “The E-QUIP Act can also encourage state-of-the-art retrofits that enhance outdoor air ventilation rates — a key practice to improve a building’s health and indoor air quality, according to the best available science.”

    Support for an Energy Efficient Economy

    American Council for an Energy-Efficient Economy E-Quip

    • The American Council for an Energy-Efficient Economy (ACEEE) has  prepared a fact sheet and analysis that estimates the climate, energy, and jobs benefits of E-QUIP Act retrofit projects: 
      • 130,000 net additional job-years.
      • $15 billion energy bill savings.
      • 100 million tons of carbon dioxide emissions avoided – or the equivalent emissions from 560,000 rail cars full of coal or taking 22 million cars off the road for one year.
    • Key elements of the E-QUIP Act are:
        
      • Elective 10-year, straight-line cost recovery period for a new category of depreciable property that meets the E-QUIP Act’s high-performance standards.
      • Available to replace or retrofit systems and components in buildings that are at least 10 years old.
      • Certification requirement that E-QUIP is designed, installed, operated, and maintained by credentialed professionals.
      • Five-year duration of incentive.
    • A uniform 10-year depreciation period for components that meet E-QUIP standards would simplify the current cost recovery “patchwork” in the federal tax code for building investments.

    The E-QUIP Act and advocacy efforts to include it as part of infrastructure legislation will be a focus of discussion during The Roundtable’s April 20 (Remote) Spring Meeting.

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    Biden Administration Preparing Multitrillion Economic Growth Proposal; Transportation Secretary Buttigieg Testifies Gateway Project Has “Sense of Urgency”

    Posted on by Trey Jackson

    Oval Office Infrastructure meeting Biden Buttigieg others

    President Biden will unveil an ambitious economic growth plan on March 31 that may cost up to $4 trillion to fund his administration’s wide-ranging goals on infrastructure, climate and domestic policies. (Reuters, March 24 and Bloomberg News, March 25) 

    • The administration’s legislative effort may be split into two parts – an initial package that funds transportation projects with a focus on climate change, and a second that addresses domestic priorities such as universal prekindergarten, national childcare and free community college tuition.  (Wall Street Journal and Washington Post, March 22, New York Times March 25)
    • Congressional Democrats are working on a filibuster-proof fiscal 2022 reconciliation bill to advance President Biden’s economic recovery plan, along with a five-year surface transportation reauthorization. Funding for the current surface transportation bill expires Sept. 30. (Law360, March 22)
    • Axios reported on March 23, the White House is considering using the budget reconciliation process two more times this year, after using it to pass the recent $1.9 trillion pandemic relief package without any Republican support. Enacting three separate reconciliation packages would be unprecedented, and require a ruling from the Senate parliamentarian that proposed legislation is eligible for reconciliation under the Congressional Budget Act of 1974. 

    Focus on Gateway Project: 

    Gateway Project map

    • The “Gateway” rail tunnel project between New York City and New Jersey is a high priority for the Biden administration that is being treated with a “sense of urgency,” according to Transportation Secretary Pete Buttigieg, who testified March 25 before the House Transportation and Infrastructure Committee. (BGov, March 25)
    • “This is a regional issue, but one of national significance because if there were a failure in one of those tunnels, the entire U.S. economy would feel it,” Buttigieg said. He added that federal and state officials are working “to develop the next administrative draft of the environmental impact statement, which is a big part of what needs to be completed in order to get there.”
    • Buttigieg also acknowledged that funding the administration’s infrastructure transportation goals must look to other revenue sources than borrowing. “There is a simple set of places we can look: user fees, general fund or other tax sources as Congress has done to fill gaps in Highway Trust Fund in recent years or borrowing,” Buttigieg testified.

     How to Pay: 

    Yellen and Powell remote testimony

    • Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell testified jointly this week before House and Senate committees on economic conditions and pandemic relief. (Wall Street Journal, March 23)
    • Yellen testified before the House Financial Services Committee on March 23 that future taxes are needed to fund infrastructure programs. “A package that consists of investments in people, investments in infrastructure, will help to create good jobs in the American economy, and changes to the tax structure will help to pay for those programs.” She added, “We do need to raise revenues in a fair way to support the spending that this economy needs to be competitive and productive.” (Financial Times, March 23)
    • Chairman Powell responded to a concern from House Committee Member Blaine Luetkemeyer (R-MO) that Fed data indicates 51 percent of current commercial real estate debt is held by banks and that community banks have a higher concentration of these loans. Powell stated, “We’re monitoring CRE very carefully. Its concentrations arise principally in smaller banks, and we’ll have to monitor it carefully as we allow moratoriums to elapse. We’re well aware of the issue and we’ll be sure to move very, very carefully when we do address that.”
    • The two regulators also testified before the Senate Banking Committee on March 24. Treasury Secretary Yellen stated that the federal government can afford to invest trillions, despite the national debt. “My views on the amount of fiscal space that the United States, I would say, have changed somewhat since 2017. Interest payments on that debt relative to GDP have not gone up at all, and so I think that’s a more meaningful metric of the burden of the debt on society and on the federal finances,” Yellen said. (The Hill, March 24)

     Taxes & CRE: 

    Taxes and CRE Ryan McCormick

    • A March 25 BisNow webinar on Tax Policy and the Impact on CRE featured Roundtable Senior Vice President and Tax Counsel Ryan McCormick, bottom left in photo. The webinar focused on the outlook for real estate tax policy in 2021, with an emphasis on like-kind exchanges and opportunity zones.
    • Other participants included Ja’Ron Smith, former Deputy Assistant to President Trump; Capital Square Founder and CEO Louis Rogers; and David Franasiak, Principal at Williams & Jensen. (Watch Video)

    Congress leaves Washington today for a two-week recess. “When the Senate returns to session, our agenda will be no less ambitious than it was over the past few months,” Senate Majority Leader Chuck Schumer (D-NY) said yesterday. (The Hill, March 25 and New York Times, March 26) 

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    Broad Coalition Highlights Economic, Social, and Environmental Benefits of Like-Kind Exchanges

    Posted on by Trey Jackson

    The Real Estate Roundtable, along with 30 other national real estate, housing, environmental, farming, ranching, forestry, and financial services-related organizations, wrote to key policymakers on March 16 to underscore the vital importance of real estate like-kind exchanges.

    The letters to Treasury Secretary Yellen and the chairmen and ranking members of the congressional tax-writing committees underscore the many benefits of like-kind exchanges to the U.S. economy and the health of real estate markets. The letters also show how the exchanges improve the supply of housing, retirement security, environmental conservation and the preservation of family-owned farms and ranches. 

    Why It Matters

    • Between 10-20 percent of all commercial real estate transactions involve a like-kind exchange.  The coalition letters describes how like-kind exchanges under section 1031 of the tax code helped stabilize property markets at the height of the COVID-19 lockdown, and will continue to facilitate repurposing of real estate assets in the post-COVID economy.
    • The letters provide supporting data showing how like-kind exchanges allow businesses to grow by reinvesting gains on a tax-deferred basis in new and productive assets. 
    • Like-kind exchanges create a ladder of economic opportunity for minority-, veteran-, and women-owned businesses and cash-poor entrepreneurs that may lack access to traditional sources of financing, according to research referenced in the letters.

    Groundbreaking Research:

    • The letters highlight original research by Professors David Ling (Univ. Fla.) and Milena Petrova (Syracuse U.) on the economic impact of like-kind exchanges.  The study commissioned by The Real Estate Roundtable and other organizations was published in two installments in the peer-reviewed Journal of Real Estate Literature here and here and more recently updated with current data.

    • The academic studies have found that exchanges spur capital expenditures, increase investment, create jobs for skilled tradesmen and others, reduce unnecessary economic risk, lower rents, support property values, and generate substantial state and local tax revenue.
    • Roughly 40 percent of like-kind exchanges involve rental housing.  The coalition emphasized in its letter that section 1031 is an important source of capital for affordable and workforce housing. Farmers and ranchers use like-kind exchanges to combine acreage, acquire higher-grade land, mitigate environmental impacts, and otherwise improve operations.  Land conservation organizations rely on exchanges to preserve open spaces for public use or environmental protection.

    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 and stability of U.S. real estate and real estate markets. 

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    Biden Administration Floats Tax Increases to Pay for Infrastructure as Policy Focus Shifts to Economic Growth

    Posted on by Trey Jackson
    The White House
    Biden Administration and The White House

    The Biden administration is considering increasing the corporate tax rate and the individual rate for high earners as it deliberates how to structure its next major legislative initiative – a sprawling “Build Back Better” economic growth package that may cost far more than the $1.9 trillion coronavirus-relief bill enacted last week. (BGov, March 15 and Roundtable Weekly, March 12) 

    Why It Matters: 

    • The first major tax increase since 1993 could be proposed as one method of funding Biden’s ambitious infrastructure plan. Heather Boushey, a member of the White House Council of Economic Advisers stated, “There is a long list of things that we need to invest in,” including “broadly defined” infrastructure, the power grid, and a plan to bolster child and elder care. (BGov and Bloomberg Television interview, March 15) 
    • Biden’s tax plan would aim to provide relief for middle-class households, including those in the $110,000-a-year income range, according to Bharat Ramamurti, deputy director of the White House National Economic Council. “The key here is that the president believes strongly that the biggest corporations and those folks who have done extremely well over the last several decades should pay a bit more,” Ramamurti said. (Bloomberg Television interview, March 16)
       
    • Senate Minority Leader Mitch McConnell (R-KY) this week rejected any potential tax increases to fund President’s Biden infrastructure plan. (The Hill, March 16)
       
    • Democrats are considering using the budget reconciliation process to pass an infrastructure bill, the same process used to pass the pandemic relief bill in the Senate by a simple majority in the 50-50 Senate. Under normal budget rules, the support of at least 10 GOP senators would be needed to defeat a 60-vote filibuster. Democrats will only be able to use reconciliation for one more bill this year. (The Hill, March 15)
    • The enormous scope of the administration’s legislative goals may lead to the possible separation of their economic growth package into as many as three bills. (Politico Playbook, March 18) 

    Congressional Legislation:

    • Expanding allowable investment opportunities for REITs could increase private sector infrastructure and help revitalize distressed retail businesses. The Roundtable-supported, bipartisan Retail Revitalization Actof 2021 (H.R. 840) – introduced Feb. 4 by House Ways and Means Members Brad Schneider (D-IL) and Darin Lahood (R- IL) – would modernize real estate investment trust tax provisions to permit REITs to invest equity in struggling commercial tenants that have been harmed by the COVID-19 pandemic. (News release, Feb. 4)

       


    • H.R. 840 is the focus of a March 16 Tax Notes article entitled, “Modifying REIT Rules Could Aid Recovery and Infrastructure Plans.”
    • House Energy and Commerce (E&C) Committee Chairman Frank Pallone, Jr. (D-NJ) has scheduled a March 22 hearing on the committee’s recently released Leading Infrastructure For Tomorrow’s (LIFT) America Act, which would provide more than $312 billion in funding for broad range of projects. (E&C news release, March 11 and Chairman’s Memorandum, March 18)
    • House E&C Committee Republicans released a clean energy and climate package this week in response to the E&C Democrats’ LIFT legislation. (E&C Republicans news release, March 15)
    • Sen. Elizabeth Warren (D-MA) and Rep. Alexandria Ocasio-Cortez (D-NY) on March 18 introduced the BUILD GREEN Infrastructure and Jobs Act, a $500 billion proposal to shift U.S. transportation away from fossil fuels by 2050. 

    What’s Next:

    • More legislation is expected to be introduced that will focus on highways, mass transit and other surface transportation, as well as tax-related energy and infrastructure measures. House bills are expected from Transportation and Infrastructure Committee Chairman Peter DeFazio (D-OR) and Ways and Means Committee Chairman Richard Neal (D-MA).
       
    • A “by-the-mile” vehicle usage tax is also under consideration to fund transportation infrastructure projects. Transportation Secretary Pete Buttigieg is considering funding highway projects with a fee based on how many miles someone travels instead of how much gasoline they pump. Buttigieg has stated the administration will move swiftly to reauthorize the surface transportation highway bill, which is set to expire at the end of September. (BGov, March 15) 
    • The Roundtable is part of the Build by the 4th coalition, led by the U.S. Chamber of Commerce, which encourages the Biden Administration and the new Congress to pass a comprehensive infrastructure deal by Independence Day 2021. 

    Infrastructure investment will be a focus of discussion between commercial real estate leaders and policymakers during The Spring Roundtable Meeting on April 20 in Washington, DC. 

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    New Bills Would Help Offset COVID-Prevention Workplace Expenses and Permanently Extend 20% Pass-Through Deduction; Industry Seeks Cost Recovery Transition Relief for Rental Housing

    Posted on by Trey Jackson

    Downtown Houston, Texas

    Two recently introduced legislative proposals supported by The Real Estate Roundtable would address issues important to commercial real estate. The Healthy Workplaces Tax Credit Act  would provide a new tax credit for business owners’ expenses associated with reducing the risk of COVID-19 in the workplace. The Main Street Tax Certainty Act would permanently extend the 20% pass-through business income deduction enacted in 2017.  Separately, a coalition of real estate organizations, including The Roundtable, urged Treasury this week to provide guidance allowing property owners to fully benefit from legislation enacted in December that clarified the cost recovery period for rental housing.

    Healthy Workplaces Tax Credit

    • On March 2, Sens. Rob Portman (R-OH) and Kyrsten Sinema (D-AZ) introduced the bipartisan Healthy Workplaces Tax Credit Act. (See one-page summary)
    • The bill includes several measures that would help businesses reopen safely, while ensuring employee and customer confidence, by providing:
      • a refundable tax credit against payroll taxes for 50 percent of the costs incurred by the business for COVID-19 testing, PPE, disinfecting, extra cleaning, reconfiguring workspaces, and employee education and training until the end of the year; and
      • an income tax credit for expenditures made to reconfigure work spaces last year (March 13, 2020- December 31, 2020)
    • Chip Rogers, president and CEO of the American Hotel & Lodging Association, stated, “The Healthy Workplace Tax Credit is critical legislation for industries like ours, to help offset these significant, but necessary operating costs at a time when hotel revenues remain down 40% or more across the country.” (Sen. Portman news release, March 2, 2021)
    • A broad business coalition, including The Real Estate Roundtable, urged Congress last July to pass a “healthy workplaces” tax credit as part of coronavirus relief. (Coalition letter,  July 16, 2020 and Roundtable Weekly  July 17, 2020).   Sen. Portman originally introduced a Healthy Workplaces Tax Credit bill on July 20, 2020.

    20% Deduction for Pass-Through Business Income (Section 199A)

    • Last week, Members of Congress in both the House and Senate introduced legislation to extend permanently the 20 percent deduction for qualified pass-through business income permanent. The bills are strongly supported by more than 80 stakeholder groups, including The Real Estate Roundtable. (Rep Jason Smith news release, Feb. 26)
    • Sen. Steve Daines (R-MT), Rep. Jason Smith (R-MO), and Rep. Henry Cuellar (D-TX) introduced the Main Street Tax Certainty Act to support small businesses, help create jobs and strengthen the economy. Without congressional action, the deduction will expire at the end of 2025.
    • In a February 26 letter to the leadership of the Senate Finance and House Ways and Means committees, The Roundtable and other stakeholders stated that making the section 199A deduction permanent would provide certainty to small businesses affected by the COVID-19 pandemic. (Tax Notes, March 1)

    Real Estate Industry Requests Rental Housing Cost Recovery Guidance

    • On March 2 a coalition of real estate industry organizations requested the Treasury Department and IRS issue guidance that would allow taxpayers to automatically change their method of accounting in order to benefit from the technical correction to the rental housing recovery period that was in the end-of-year omnibus spending bill enacted in December (Roundtable Policy Alert, Dec 22, 2020)
    • The 2020 law clarified that properties placed in service before 2018 are eligible for the new 30-year cost recovery period under the Alternative Dispute System (ADS).
    • The industry letter was led by the National Multifamily Housing Council and joined by The Real Estate Roundtable, International Council of Shopping Centers, Nareit, and others.
    • The letter also requests transition relief that would allow real estate partnerships to file amended returns to opt out of the limitation of business interest deductibility now that the penalty for opting out is a 30-year cost recovery period, rather than the prior 40-year ADS recovery period.

    The Roundtable and its Tax Policy Advisory Committee (TPAC) will continue to work with policymakers in Congress and regulatory agencies on the fair and equitable tax treatment of real estate.

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    Bipartisan Legislation Allowing REITs to Increase Investment in Commercial Tenants Introduced

    Posted on by Trey Jackson

    Downtown Salt Lake City, Utah

    Bipartisan legislation introduced Feb. 4 by House Ways and Means Members Brad Schneider (D-IL) and Darin Lahood (R- IL) would modernize real estate investment trust (REIT) tax provisions to permit REITs to invest equity in struggling commercial tenants that have been harmed by the COVID-19 pandemic. (News release, Feb. 4)

    • The Retail Revitalization Act of 2021 (H.R. 840) – strongly supported by The Roundtable and a coalition of real estate, retail, and labor interests – would help address the challenges in the retail sector that have been exacerbated by the coronavirus. Failure to make these changes could result in further retail bankruptcies, liquidations of retail businesses, large-scale job losses and a collateral impact on related supply chains that service the sector.   
    • “The COVID-19 pandemic has decimated the retail sector, resulting in lost jobs and shuttered doors. Retailers across the county are already facing bankruptcy, liquidation or large-scale job losses. Allowing REIT landlords to infuse more capital into their retail tenants will help offset the retail sector’s devastating losses caused by the pandemic and save jobs,” said Rep. Schneider.
    • Rep. Lahood added, “Retailers need more funding as they work to recover from the pandemic and this legislation will help infuse critical private capital into small businesses struggling.”
    • Roundtable member Brian Kingston, CEO of Brookfield Property Group commented, “As one of the largest shopping mall owners in the U.S., we have seen first-hand the devastating effects the pandemic has had on many of our tenants.  A modernization of the REIT rules—like those contained in the Retail Revitalization Act—will allow us to respond to our tenants request for further assistance, in turn allowing them to keep their doors open, save thousands of jobs, and continue to generate millions in tax revenue for federal, state, and local governments.”
    • The bill would modify existing related-party rent rules that treat rental income received by a REIT from a tenant in which the REIT owns more than a 10 percent interest as bad income for REIT purposes.  Specifically, among the changes, the bill would:
      • increase the capacity of a REIT to own the equity of a tenant from 10% to 50%, and
      • conform the ownership attribution rules used for determining what is considered related-party rent under the REIT rules to the general ownership attribution rules that apply to corporations.

    Speaking at a virtual event with the sponsors and stakeholders on the day of introduction, Roundtable President and CEO Jeffrey DeBoer said, “[A]s important and helpful as Congress’s actions have been for smaller businesses, a lifeline is now needed, particularly to larger retail businesses and the people who work in the retail industry.”

    “The legislation is not a tax cut or a tax break,” DeBoer continued, “It is very much a private sector solution.  It would provide a legal framework for property owners … to put their own capital at risk by making equity investments in struggling retail businesses that employ tens of thousands of workers nationwide.”  

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    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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    Treasury Department Finalizes Regulatory Projects on Carried Interest, Deductibility of Business Interest

    Posted on by Trey Jackson

    Treasury Department x475

    Treasury Department officials are working overtime to complete several multi-year tax regulatory projects before handing authority over to the new Biden Administration. These rules largely relate to the implementation of the Trump Administration’s signature legislative accomplishment, the Tax Cuts and Jobs Act of 2017. 

    • The recently finalized regulations address carried interest and the deductibility of business interest.
    • The IRS on Dec. 29 issued a final revenue procedure (Rev. Proc. 2021-9) creating a safe harbor for senior housing to qualify for an exception to the new limitation on the deductibility of business interest. The statutory exception is available to a “real property trade or business.” Uncertainty regarding whether an assisted living facility would qualify as a real property trade or business has hung over the senior housing industry since the legislation’s enactment. The new revenue procedure puts those lingering concerns to rest and clarifies that senior housing qualifies for the exception, as long as certain requirements are met.
    • In addition, Treasury released supplemental, final regulations on the deductibility of business interest this week.  The rules address changes made in the CARES Act, as well certain transition relief for partnerships (T.D. 9943)
    • The long-awaited carried interest final regulations implement the new three-year holding period requirement for carried interest to qualify for the long-term capital gains preference (T.D. 9945). 
    • The final carried interest regulations address several comments submitted by The Real Estate Roundtable. Roundtable comments aimed to ensure the rules are consistent with legislative intent of the provision (Oct. 5, 2020 comment letter). 
    • Specific improvements in the final carried interest rules provide greater flexibility for a general partner to finance an equity interest in a partnership with a loan from other partners in the partnership. The final rules also clarify that the three-year holding period does not override other provisions of the tax code that treat certain transactions as nontaxable events. 
    • Proposed regulations still outstanding include tax rules related to the transition away from LIBOR as a reference rate in mortgages and other financial contracts (Roundtable Weekly, Oct. 11, 2019).

    The Roundtable’s Tax Policy Advisory Committee (TPAC) will discuss these regulatory efforts in detail on January 27 in conjunction with The Roundtable’s State of the Industry Meeting (all virtual).

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