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Sweeping Tax Reform Plan Raises Key Concerns for Multifamily

Tax Reform Plan

House Ways and Means Committee Chairman Dave Camp (R-Mich.) has unveiled a sweeping tax reform proposal to little or no fanfare on Capitol Hill. Camp emphasized that taxpayers would receive lower tax rates along with a simpler, fairer code that would boost the economy. But Republicans and Democrats alike are saying that the proposal targets several popular tax breaks in a critical election year, and Speaker of the House John Boehner (R-Ohio) is setting low expectations for any quick action on the plan.

Both the individual and corporate aspects of the proposal are being carefully analyzed by lawmakers and pundits in the press. For the multifamily industry, an area that could be of significant concern is that the proposal would extend to 40 years, from 27.5 years, the depreciation period for apartment buildings placed in service beginning in 2017. In a further blow to real estate, depreciation recapture would be taxed at ordinary income rates of up to 35 percent, as opposed to today’s 25 percent rate, for sales after 2014.

The multifamily industry can, however, also claim significant victories. Most notably, the proposal retains capital gains tax treatment for a carried interest applicable to multifamily real estate. The proposal also maintains the full deductibility of business, interest and state and local taxes, resulting from business activities. In addition, the Low-Income Housing Tax Credit is preserved, even though it had been under fire, but with a longer recovery period and without the current four percent credit. And finally, the current-law estate tax, which allows for a $5.34 million ($10.68 million per couple) exclusion, 40 percent top tax rate, and stepped-up basis for inherited assets, is left unchanged in the proposal.

Although the House and Senate are not expected to advance comprehensive legislation this year, Camp’s tax reform proposal is likely to be the subject of Ways and Means Committee hearings. The bill will also certainly be a starting point for any future tax reform discussions beyond this year and NAA/NMHC will continue to remain actively engaged.

Learn more about Camp’s tax reform plan in this in-depth analysis.

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