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Let the Federal Budget Games Begin

Federal Budget

Now that President Obama has sent his record-breaking $4 trillion FY 2016 budget request to Congress, department heads from across the federal government are heading to Capitol Hill to negotiate and justify their budgets with Senate and House lawmakers. That includes HUD Secretary Julián Castro and his senior team, who will be tasked with presenting numerous notable provisions in his department’s budget.

HUD Budget Breakdown

The President’s proposed budget includes more than $49 billion for HUD, which is about $4 billion more than what Congress approved for FY 2015.

Specifically, the funding level for the Tenant Based Rental Assistance in the proposal is $21.12 billion, which represents a 9 percent increase over last year’s appropriated amount.  Project Based Rental Assistance was also increased by $1.03 billion over last year’s amount to $10.76 billion.  In addition, the Rental Assistance Demonstration received $50 million for the conversion of public housing units in high cost areas as part of the Administration’s preservation strategy for affordable housing.

Programmatic changes in the proposed HUD budget include new flexibilities for Public Housing Authorities and property owners to recertify the incomes of families on fixed incomes every three years, similar to a bill currently sponsored by Congressman Ed Perlmutter (D-Colo.) and Steve Stivers (R-Ohio). Changes were also included to address the timely release of Fair Market Rents. 

Taxes

On the tax side, the Administration seeks to increase the maximum tax rate on capital gains and dividends from 20 percent to 24.2 percent, taking the maximum tax rate on such income to 28 percent when the 3.8 percent tax on net investment income is included.  

The proposal also would, subject to a $100,000 exclusion, tax property that is transferred to a decedent as a capital gain. Current law resets the value of an asset for tax purposes at its fair market value at the time of transfer, which shields those inheriting property from capital gains taxes.

The Administration’s budget again makes several proposals designed to benefit the multifamily industry. They would:

  • Modify and extend the tax deduction for energy-efficient commercial buildings and the tax credit for the construction of energy-efficient new homes;
  • Expand and make targeted improvements to the Low-Income Housing Tax Credit;
  • Exempt foreign pension funds from the application of the Foreign Investment in Real Property Tax Act, or FIRPTA;
  • Increase to $1 million the amount of qualifying investment a small business can expense as opposed to having to depreciate; and
  • Modify and extend the New Markets Tax Credit.

In terms of increases that could impact the multifamily industry, and that are once again proposed this year, the budget would:

  • Tax carried interest at ordinary income rates instead of at capital gains rates;
  • Limit to $1 million the amount of capital gains that could be deferred by using like-kind exchanges;
  • Subject additional taxpayers to the estate tax by lowering the exclusion amount to $3.5 million from $5.43 million and increasing the tax rate to 45 percent from 40 percent; and
  • Reduce the value of itemized tax deductions and certain health and retirement contributions to 28 percent from today’s maximum of 39.6 percent.

 

Provided by NMHC as part of the NAA/NMHC Joint Legislative Program