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Senator Thune Introduces Tax Legislation Promoting Apartment Investment

Tax Legislation

Senate Finance Committee member John Thune (R-SD) has introduced legislation that would enhance and make permanent tax provisions designed to spur business investment. The Investment in New Ventures and Economic Success Today (INVEST) Act of 2017 would allow apartment firms to garner additional benefits from small business expensing and accelerate cost recovery on other investments. While introduced as a standalone bill, Senator Thune said the measure is intended to be included in broader tax reform legislation expected from the Senate.

The Thune bill includes two key proposals that would spur apartment investment.

Section 179 ExpensingThe bill would expand and make permanent so-called Section 179 small business expensing. Under current law, small businesses may expense, as opposed to depreciate, up to $510,000 of new investment annually. This benefit is phased out when business investment exceeds $2.54 million. The Thune bill proposes to enable up to $2 million in investment to be expensed annually with a phase out beginning when a business spends more than $3 million.

Notably, current-law prevents apartment operators from applying Section 179 expensing to property used in rental real estate, including appliances and furnishings. The bill would remove this prohibition, allowing such investments to be included within Section 179 expensing limits.

Bonus Depreciation: The bill would increase and make permanent bonus depreciation to enable businesses of all sizes to expense 50 percent of the cost of property with a class life of 20 years or less in the year of purchase. The remainder would be depreciated under current-law rules. Under current law, qualifying assets placed in service in 2017 are eligible for 50 percent bonus depreciation. Property placed in service in 2018 and 2019 is eligible for 40 percent and 30 percent bonus depreciation, respectively, before the provision is eliminated thereafter.

Senator Thune’s bill takes a different approach to cost recovery rules than the House Republican Blueprint currently under consideration by the House Ways and Means Committee. House Republicans are debating whether to allow the full expensing of all investment (except for land) while denying the deductibility of business interest. While the Thune bill would accelerate the depreciation of certain business investment, it does not modify the 27.5-year depreciation period applicable to multifamily buildings. It also does not address tax laws regarding business interest.

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