Spring 2023 Policy Toolkit - Tax Policy
The tax system should treat real estate consistently with other types of assets and avoid excessive incentives or disincentives that distort markets. In limited and narrow circumstances (e.g., low-income housing), tax incentives are needed to address market failures and encourage capital to flow to socially desirable activities. The Tax Cuts and Jobs Act of 2017 retained or enhanced key elements of the tax code that promote productive real estate investment and job growth. The Real Estate Roundtable works with policymakers to ensure that our tax laws and regulations reflect the economics of real estate assets and contribute to strong property values and well-served, livable communities.
Inflation Reduction Act of 2022 - Revenue Provisions - Fact Sheet
See more details below on each policy issue:
Property Conversions and Housing Tax Incentives Issue Position Background
The United States is facing a severe shortage of affordable housing. At the same time, certain other commercial real estate assets like office buildings are under significant stress due to pandemic-related issues, including employers’ greater reliance on remote work arrangements. The Roundtable is encouraging lawmakers to help revitalize cities, boost local tax bases, and address housing challenges by enacting a tax incentive for converting older, under-utilized buildings to housing. The Roundtable also supports a meaningful expansion of the low-income housing tax credit.
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.
Taxing Unrealized Gains (“Billionaire Tax”) Issue Position Background
In September 2019, Senate Finance Committee Ranking Member (now Chairman) Ron Wyden (D-OR) proposed a mark-to-market regime for capital assets in which built-in gain is taxed on an annual basis, regardless of whether the asset is sold. The regime would apply to taxpayers with $1 million in income or $10 million in assets for three consecutive years. Two years later, Chairman Wyden released a modified and more detailed version of the proposal focused on “billionaires.”
Pass-Through Business Income Issue Position Background
Real estate generally is owned and operated through “pass-through” entities that allow income to pass through to individual owners rather than taxing the income at the entity level.
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.
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.
Step-Up In Basis Issue Position Background
When an individual dies, the U.S. levies a comprehensive tax on his or her wealth and assets, including unrealized gains, through the estate tax where wealth that exceeds an exemption amount ($6 million in 2022) generally is taxed at a rate of 40%. Separately, for income tax purposes, the basis of assets in the hands of an heir is “stepped up” to fair market value at the time of decedent's death.
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.
Like-kind Exchanges Issue Position Background
The ability to defer capital gain when a taxpayer exchanges one property for another is an essential feature of the current tax system that spurs capital investment, especially during times of market corrections and liquidity shortages.
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.
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 Issue Position BackgroundTax Reform: Tax Cuts and Jobs Act of 2017In short, in areas critical to real estate investment, the new law includes a number of provisions that ensure the tax code continues to tax real estate on a rational basis.
June 2, 2023
Bipartisan Legislation Reintroduced to Allow Greater REIT Equity Investments in Distressed Retail Tenants
May 19, 2023
Senate Republican Taxwriter Introduces Legislation to Permanently Extend 20% Pass-Through Income Deduction
May 19, 2023
Lawmakers Reintroduce Bill to Reform, Expand the Low-Income Housing Tax Credit
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