Tag: Partnerships & Pass-Through Taxation

“One Big Beautiful Bill” Moves Through to the Senate as House Republicans Unite on Trump Tax Plan

Posted on by abigail_grenadier

House Speaker Mike Johnson (R-LA) met his self-imposed Memorial Day deadline as dissenting factions within the caucus reached an agreement on a series of last-minute changes, culminating in a razor-thin vote (215-214) on the One Big Beautiful Bill Act early Thursday morning. The budget reconciliation measure—which has wide implications for CRE—now goes to the Senate, where a similar tug of war could play out. (Ways & Means Press Release, May 22)

State of Play

  • The House Budget Committee voted late Sunday night to advance President Donald Trump’s One Big Beautiful Bill Act after several GOP hard-liners on the Committee blocked the measure from moving forward last Friday. (ABC News, May 19)
  • President Trump traveled to Capitol Hill Tuesday morning to deliver a message to House Republicans impeding the massive bill, a critical part of his domestic agenda: stop fighting and get it done as soon as possible. (NBC News, May 20)
  • The chamber took action, clearing the sprawling package in an early-morning vote Thursday after days of marathon meetings, intense negotiations that spanned both ends of Pennsylvania Avenue, and a series of swift changes to the bill, which were crucial in coalescing Republicans around the measure. (The Hill, May 22)
  • House Ways and Means Chair Jason Smith (R-MO) said that he’s been working “hand in glove” with Majority Leader John Thune (R-SD) and Senate Finance Committee Chair Mike Crapo (R-ID) on the tax package and had crafted it intentionally so it could survive the Senate’s rules. “I think 90 to 95 percent of the bill is going to be pretty much very similar,” he said previously. (Bloomberg, May 22)

Implications for CRE

  • The legislation includes an extension of the 2017 tax cuts, while maintaining the full deductibility of state and local business property tax deductions (also known as “Business SALT”) and preserving the current treatment of carried interest, two key priorities for The Roundtable in the current tax negotiations.
  • Additionally, the pass-through deduction under Section 199A would increase from 20 percent to 23 percent for qualifying income, including REIT dividends and the real estate operating income of partnerships and other pass-through entities. A late addition to the bill will allow REITs greater flexibility in their use of taxable REIT subsidiaries. (The Hill, May 21)
  • The bill extends the Opportunity Zone (OZ) tax incentives through 2033, with several updated eligibility criteria and new benefits for rural areas. This legislation also calls for a new round of OZ designations by state governors. (Mortgage Point, May 22)
  • Other positive developments include an expansion of the low-income housing tax credit and the reinstatement of 100 percent expensing for qualifying leasehold and nonresidential property improvements.
  • Now, the Senate will debate and craft its version of the bill, which it aims to pass by July 4. (The Hill, May 21; CNBC, May 22)

The Roundtable’s Position

  • RER expressed support for the House’s budget reconciliation measure. The extension of TCJA policies, preservation of property tax deductibility, continued capital gains treatment for carried interest, increased investment in affordable housing, and enhanced pass-through deduction are all positive developments. 
  • “Taken as a whole, the tax proposals in the Chairman’s amendment will spur needed investment in our nation’s housing supply, strengthen urban and rural communities, and grow the broader economy to the benefit of all Americans,” said RER President and CEO Jeff DeBoer in a recent statement following the House Ways and Means Committee’s bill markup last week.

What’s Next       

  • The action on the tax and fiscal legislation now shifts to the U.S Senate where Republicans are operating under similar tight margins.
  • Senate Republican leaders have not yet decided whether they will mark up the reconciliation bill in the various committees of jurisdiction. Finance Chairman Crapo could bring a substitute amendment straight to the Senate floor sometime in June.

RER will work to ensure that these hard-fought victories are protected in any final tax package.

The Roundtable Shares 2025 Tax Legislative Agenda with Lawmakers

Posted on by Trey Jackson

Responding to a request for input from the chairs of the House Ways and Means Committee and Ways and Means Tax Policy Subcommittee, The Real Estate Roundtable submitted comments on the pending expiration of the Tax Cuts and Jobs Act of 2017 and ways in which tax policy can support long-term investment, economic stability, and the creation of affordable housing. (Letter, Oct. 2)

Roundtable Recommendations

The letter from Roundtable President and CEO Jeffrey DeBoer urges lawmakers to ensure that any major tax legislation in 2025 retain or include:

  • The reduced tax rate on long-term capital gains. The capital gains rate is critical for driving long-term real estate investment and fostering job creation. Raising capital gains rates, taxing unrealized gains, or double-taxing gains at death would deter entrepreneurship, increase costs, and reduce economic mobility.
  • Tax fairness for partnerships and pass-through entities. Half of the nation’s tax partnerships are real estate-related, making these provisions vital to the industry’s success.  Section 199A, which provides a 20% deduction on pass-through business income (including REIT dividend income), allows privately held businesses to compete on a level playing field with large corporations.
  • Like-kind exchanges. Section 1031 allows for the deferral of capital gains through real estate exchanges and helps gets languishing properties into the hands of new owners who will invest in, and improve, them.  Retaining section 1031 is vital to promoting reinvestment in communities, creating opportunities for minority and small business owners, and improving struggling properties.
  • Tax rules that encourage, rather than deter, foreign investment in U.S. real estate. Targeted changes to the outdated and discriminatory Foreign Investment in Real Property Tax Act (FIRPTA) could unlock capital for large-scale real estate and infrastructure projects that create jobs and spur economic development.
  • Incentives for affordable housing, energy efficiency, and community revitalization. The Roundtable supports expanding the low-income housing tax credit (LIHTC), improving the real estate-related clean energy tax provisions in the Inflation Reduction Act, and introducing new incentives for the conversion of obsolete commercial buildings into affordable housing. The letter also calls for a long-term extension of Opportunity Zone (OZ) tax incentives and preserving carried interest tax rules that recognize and reward sweat equity with capital gains treatment.

The Roundtable is committed to working with lawmakers to ensure the U.S. maintains a competitive tax code that encourages capital formation, rewards entrepreneurial risk-taking, and supports critical policy objectives, including accessible and affordable housing and safe and healthy communities.

IRS and Treasury Unveil New Rules Aimed at Partnership “Basis-Shifting” Transactions

Posted on by Trey Jackson

This week, the IRS and Treasury Department announced a multistage regulatory initiative aimed at regulating certain partnership transactions that shift the tax basis of assets and generate additional depreciation deductions, reduce taxable gains, or increase deductible losses. (IRS-Treasury Press Release, June 17)

Guidance Package

IRS building in Washington DC
  • In Notice 2024-54, Treasury and the IRS indicated they intend to issue proposed regulations governing certain transactions that affect the basis of property held by a partnership or distributed by a partnership. The guidance will focus on partnerships that involve related parties or tax-indifferent parties. 
  • Related parties could include family members, corporations and their shareholders, and other entities and businesses with common or overlapping ownership.  It is unclear from the guidance where the administration believes the targeted abuses generating inappropriate tax benefits are most likely to arise (e.g., corporate mergers, family offices, real estate, etc.). 
  • The rules will apply to cost recovery deductions and gain/loss calculations for tax years ending after June 17, 2024, thus covering deductions, gains, or losses attributable to transactions completed in prior years. 

Roundtable Concerns

  • A principal concern voiced at this week’s RER Tax Policy Advisory Committee meeting is related to the broad scope of the new rules. Rather than focusing specifically on identifiable, abusive transactions, Notice 2024-54 states that the forthcoming regulations will provide “mechanical rules applicable to all covered transactions without regard to the taxpayer’s intent and without regard to whether the transactions could be abusive or lacking in economic substance.”
  • Moreover, the Notice states that the regulations will only apply if the transaction results in a basis increase for the relevant property.  “If, and to the extent, property has been allocated a basis decrease, the proposed rules would not apply.”
  • The new rules thus apply to a transaction regardless of whether the transaction is abusive or lacking in economic substance, but only if they result in a negative outcome for the taxpayer.  If the same mechanical rules would generate a positive result for another taxpayer, they are disregarded.  In sum: Heads, IRS wins; tails, taxpayer loses. 

Additional Developments:

Other elements of the regulatory initiative include:

  • Proposed regulations (REG-124593-23) identifying some partnership-related-party basis adjustment transactions as transactions of interest and requiring disclosures by participants and material advisers. 
  • Revenue Ruling 2024-14 notifying taxpayers that it will apply the codified economic substance doctrine to challenge certain basis-shifting transactions. 
  • The IRS Office of Chief Counsel also announced the formation of a new associate office focused exclusively on partnerships, S corporations, trusts, and estates. (TaxNotes, June 17)

The Roundtable’s Tax Policy Advisory Committee will continue its discussion of the partnership basis-shifting issue and how best to respond on its next TPAC Zoom meeting.