August 10, 2021 -- Reconciliation Legislation with Significant Tax Measures Impacting CRE
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Dear [Member of Congress]:
I write to share my concerns with proposed tax increases on U.S. commercial real estate and the 13.6 million jobs it supports. As you consider tax reconciliation legislation, I urge you to avoid new and discriminatory taxes on real estate that will harm the industry’s ability to drive job growth, expand the supply of housing, and support struggling communities with state and local property tax revenue.
Over the last 18 months, the real estate industry has helped mitigate the impact of the COVID-19 crisis. Property owners have restructured leases with tenants under stress, advocated for rental assistance, educated tenants on how to access relief, implemented building protocols, and invested in health-related improvements. In short, the industry has been an important partner in the national pandemic response.
Risky and ill-timed tax increases on real estate, if enacted, would undermine jobs and the economy just as the country is turning the corner. Congress should reject proposals such as:
- Restricting the deferral of capital gain through like-kind exchanges, which stimulate property improvements and spur job creation
- Taxing unrealized capital gains at death, thus forcing the dissolution of family-owned businesses
- Ending the incentive for long-term, capital investment by taxing capital gains at ordinary rates
- Raising taxes on the country’s two million real estate partnerships by increasing the tax rate on pass-through business income
- Treating all carried interest as ordinary income, thereby penalizing entrepreneurial risk-taking and reducing investment in long-neglected neighborhoods
Economic uncertainties and health risks – such as the COVID Delta variant – remain a national concern. Real estate was hit hard by the pandemic. Now is not the time to impose new tax increases on the industry. I encourage you to oppose these tax proposals. With your leadership, real estate can and will continue moving the economy forward and putting Americans back to work.
See more details below on each Tax policy issue:
Additional Reference: 2021 Roundtable Policy Agenda - Tax Policy
Foreign Investment In Real Property Tax Act (FIRPTA) Issue Position Background
FIRPTA applies a discriminatory capital gains tax on foreign investors in U.S. real estate that does not apply to any other asset class. In so doing, the FIRPTA regime discourages capital formation and investment that could be used to create jobs and improve U.S. real estate and infrastructure.
Carried Interest Issue Position Background
The Roundtable has spearheaded a coalition of 14 national real estate organizations to urge members of the House of Representatives not to move forward with the Carried Interest Fairness Act. The bill would limit capital gain treatment only to taxpayers who have cash to invest, making it more expensive to build or improve real estate and infrastructure, including workforce housing, assisted living communities, and industrial properties, to name just a few.
Opportunity Zones Issue Position Background
An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the U.S. Treasury.
Interest Deductibility Issue Position Background
The ability to borrow without a tax penalty is critical to the health and stability of real estate markets. The Roundtable’s advocacy helped put the potential harm of changes to the deductibility of business interest front-and-center for lawmakers during the consideration of the tax overhaul.
Affordable Housing Issue Position Background
The low-income housing tax credit (LIHTC) is an effective, market-based tool to help address the shortage of affordable housing in the United States. The 40 percent reduction in the corporate tax rate indirectly reduced the value of the LIHTC and demand for the credit.
The Roundtable's policy agenda encourages government programs designed to increase the nation's stock of affordable, low-income and market-rate housing, as opposed to rent control and other measures that constrict residential supplies.
Tax Reform Technical Corrections Issue Position BackgroundTax Reform Technical Corrections - Nonresidential, Improvements, Multifamily HousingIn the rush to pass tax reform, one unintentional drafting mistake has resulted in a longer cost recovery period for qualified interior improvements (a category that previously covered leasehold improvements, retail improvements, and new restaurant construction).
Internet Sales Tax
In June, in South Dakota v. Wayfair, the Supreme Court overturned its prior case law and upheld a South Dakota law that imposes sales tax collection requirements even if the seller lacks a physical presence in the State. The decisions marks a monumental step forward in the effort to create a level economic playing field between internet retailers and Main Street stores.
Condominium Tax Accounting Issue Position Background
In the last Congress, the Fair Accounting for Condominium Construction Act (H.R. 3659) would have corrected the tax accounting treatment of new condominium development. The Real Estate Roundtable will work with Members of Congress to advance this issue in 2019.
Capital Gains Issue Position Background
Traditionally, the United States has taxed long-term capital gains at a lower rate than ordinary income (wages, rent, and other compensation). The only exception was a brief three-year period after the Tax Reform Act of 1986 when Congress lowered the top ordinary tax rate from 50% to 28% and created temporary tax parity between ordinary and capital income. Long-term capital gain is currently taxed at a top rate of 20%. However, the rate will increase to 23.8% if the income is subject to a 3.8% tax on net investment income. The net tax investment income applies to real estate gains earned by passive investors and not the income earned from the active conduct of professionals in real estate.
Congress should continue to encourage investment and job creation with a meaningful capital gains incentive.
Maintaining a reduced rate on capital gains decreases the cost of capital, drives long-term investment, encourages productive entrepreneurial activity, draws investment from around the world, and increases U.S. workforce productivity and competitiveness.
We should be taking steps to encourage and reward risk-taking and investment in communities where it is needed, not punishing it.
August 6, 2021
House Republicans Urge Biden Administration to Preserve Like-Kind Exchanges
July 23, 2021
Senate Finance Committee Chair Introduces Bill to Restrict 20% Pass-through Business Income Deduction
June 25, 2021
Roundtable-backed Bipartisan Bill Would Correct Condo Construction Tax Accounting Issue; Roundtable Joins Coalition Letter in Defense of Pass-Through Deduction
December 21, 2021
Real Estate Roundtable and Other Stakeholders Urge Congress to Extend Expiring Opportunity Zone Tax Incentive Deadlines
July 28, 2021
Coalition Opposes Eviction Moratorium Extension
March 15, 2021
Broad Business Coalition Highlight the Economic, Social, and Environmental Benefits of Like-Kind Exchanges
The Roundtable's Tax Policy Advisory Committee (TPAC) is led by Frank G. Creamer, Jr. (FGC Advisors, LLC) as chairman, and Kathy Weiden (LeFrak) as vice chairman. TPAC members are leading experts on tax issues affecting commercial and multifamily real estate, and include representatives from the major national real estate trade associations.
Senior Vice President & Counsel