Section 199A – The Real Estate Roundtable

Senate Finance Committee Tackles 2025 Tax Policy Debate

Posted on September 13, 2024September 13, 2024 by Abigail Grenadier

The Senate Finance Committee held a hearing on the 2025 tax policy debate, highlighting sharp divides between Republicans and Democrats over the future of the key provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) that are set to expire in 2025. (Watch Hearing | Bloomberg, Sept. 12)

2025 Tax Policy Debate

Chair Sen. Ron Wyden (D-OR) pushed for reforms targeting tax avoidance by the ultra-wealthy. Wyden pointed out tactics like “buy, borrow, die,” which he argues allow billionaires to accumulate wealth without paying appropriate taxes, and criticized corporate tax loopholes. (Sen. Wyden Statement)

Ranking Member Sen. Mike Crapo (R-ID) defended the TCJA, emphasizing its positive impact on economic growth, job creation, and tax relief for middle-class Americans. Sen. Crapo warned that allowing the TCJA to expire would result in significant tax increases for individuals and businesses, harming the economy. (Sen. Crapo Statement)

Jeff Brabant, VP of Federal Government Relations at the National Federation of Independent Business, testified on the importance of making the 20% pass-through business income deduction (Section 199A) permanent and shared new data detailing the critical impact the deduction’s looming expiration will have on the small business economy if Congress fails to act. (Brabant Testimony)

Republicans also pushed back on potential changes to estate taxes, including lowering exemptions or eliminating stepped-up basis, which they argue would hurt family-owned businesses. (Bloomberg, Sept. 12)

Speaking on the consequences of eliminating stepped-up basis on small businesses, Brabant said, “If you get rid of stepped-up basis and you have an increase in the death tax, you’re looking at a double death tax. Our members who are nearing retirement, this is a critical issue for them. The concern for the small business sector is, often these small businesses are selling these businesses—because they can’t afford to pay these taxes—to larger businesses that don’t have the same footprint in these same small rural communities.”

199A Coalition

The Roundtable is a founding member of the newly formed PROTECT Coalition, an alliance of small, medium and large pass-through businesses and industries that oppose the expiration of Section 199A. (Politico, Sept. 5)

The coalition’s mission is to defend vital tax incentives that support the growth and sustainability of successful entrepreneurial businesses across the nation.

The Real Estate Roundtable’s SVP & Counsel Ryan McCormick said, “Over four million businesses, including two million in real estate, are organized as partnerships. Section 199A was enacted to ensure that these entrepreneurial businesses could compete on a level playing field with large corporations. Permanently extending Section 199A will allow partnerships and other pass-through businesses to continue advancing careers, investing in communities, and expanding economic opportunity for all.”

What’s Next

The TCJA expiration looms large, with both parties framing the debate around small businesses, working families, and economic growth. Republicans argue that letting it expire would stifle economic activity, while Democrats are focused on shifting more of the tax burden on higher-income earners.

Next week, on September 18 at 2:00 PM EDT, the Senate Banking, Housing and Urban Affairs Subcommittee on Economic Policy, chaired by Senator Elizabeth Warren (D-MA) will hold a hearing on the macroeconomic impacts of potential tax reform in 2025.

The Roundtable’s Tax Policy Advisory Committee (TPAC) will continue to closely track ongoing tax debates in Congress.

Senate Republican Taxwriter Introduces Legislation to Permanently Extend 20% Pass-Through Income Deduction

Posted on May 20, 2023October 27, 2023 by Trey Jackson

Yesterday, Senate Finance Committee member Steve Daines (R-MT) reintroduced legislation to make permanent the 20 percent deduction for pass-through business income (Section 199A), one of the cornerstone provisions of the Tax Cuts and Jobs Act of 2017 that expires at the end of 2025.

Deduction Sunset

The Main Street Tax Certainty Act of 2023 supports small businesses, helps create jobs, and strengthens the economy. (Sen. Daines’ news release, May 18)

House Ways and Means Committee Chairman Jason Smith (R-MO), who has long championed making Section 199A permanent, is anticipated to re-introduce the legislation in the House soon.
In 2017, Congress created the 20% deduction for pass-through business income to avoid putting businesses organized as partnerships, S corporations (S corps), and real estate investment trusts (REITs) at a competitive disadvantage relative to large C corporations (C corps).
Section 199A is scheduled to sunset on Dec. 31, 2025 as businesses continue to recover from post-pandemic price hikes, labor shortages, and supply chain disruptions.

Section 199A Permanency

The Real Estate Roundtable and a coalition of more than 145 business organizations sent a letter yesterday to Sen. Daines in support of the bill. (Coalition letter, May 18)
The letter notes that the bill “would provide certainty to the millions of S corporations, partnerships and sole proprietorships that rely on the Section 199A deduction to remain competitive both here and overseas.”
Previously, The Roundtable and other stakeholders supported congressional efforts in 2021 to make the pass-through deduction permanent. (Coalition letter, Feb. 26, 2021 and Tax Notes, March 1, 2021)

While House Republicans are expected to introduce an economic growth package in the coming weeks that includes tax cuts, it is unclear whether the bill will address provisions such as Section 199A that are not scheduled to expire until the end of 2025.

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Roundtable-backed Bipartisan Bill Would Correct Condo Construction Tax Accounting Issue; Roundtable Joins Coalition Letter in Defense of Pass-Through Deduction

Posted on June 25, 2021October 27, 2023 by Trey Jackson

residential construction condo

Two senior members of the House Ways and Means Committee introduced bipartisan legislation this week that would correct current condominium tax accounting rules.

Condo Accounting Relief

House Ways and Means Committee members Bill Pascrell Jr., (D-NJ) and Vern Buchanan, (R-FL) on June 22 announced the Fair Accounting for Condominium Construction Act to encourage greater housing development in high-population and high density-areas. (Pascrell news release)
Current condo tax accounting rules require multifamily developers of condominium buildings with five or more residential units to recognize income and pay tax on their expected profit as construction is ongoing — well before pre-sale transactions are closed and full payment is due from the buyer.
Homebuilders of single-family homes, townhouses and row houses are not subject to this percentage-of-completion tax accounting rule restriction. As a result, current tax accounting rules discriminate against vertical condominium by unfairly accelerating federal income tax liability for new condominium construction.
Rep. Pascrell’s legislation would provide for an exclusion from the percentage-of-completion method for condo construction.

Roundtable Endorsement

Roundtable President and CEO Jeffrey DeBoer said, “The Pascrell-Buchanan legislation will modernize the outdated percentage-of-completion tax accounting rules that discriminate against condominium construction. The bill will reduce the cost of building new housing, especially in high-cost areas where greater density is needed. The Real Estate Roundtable commends the sponsors for introducing a common sense measure that, when enacted, will help expand the nation’s housing supply.” (Pascrell news release)

Section 199A Support

Separately, The Roundtable, as part of a broad business coalition, this week also weighed in on the 20-percent tax deduction for qualified business income (Section 199A), which was enacted as part of the 2017 Tax Cuts and Jobs Act. (Roundtable Weekly, April 2)
Senate Finance Committee Chairman Ron Wyden (D-OR), above, reportedly plans to propose changes to Section 199A affecting partnerships, LLCs, and other entities taxed only at the individual owner level. According to BloombergTax, Wyden’s legislation, which is still being drafted, will likely aim to start phasing out the deduction for individuals making above $400,000 in annual business income. Wyden also plans to keep the deduction in place until it is scheduled to expire at the end of 2025.
The business coalition’s June 22 letter to the leadership of the tax-writing Senate Finance and House Ways and Means Committees expressed strong opposition to any reductions or repeal of the Section 199A deduction, including phasing out the deduction above certain income thresholds.
The coalition’s letter emphasizes how nearly 40 percent of individually- and family-owned businesses closed their doors during the COVID pandemic – and that Section 199A provided critical tax relief.

The June 22 letter adds, “Proposals to limit or repeal the deduction would hurt Main Street businesses and result in fewer jobs, lower wages, and less economic growth in thousands of communities across the country. Such changes would amount to a direct tax hike on America’s Main Street employers, a key reason why the tax plan released by the White House in March left the deduction fully intact.”

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Business Coalition Supports Legislation to Make New Pass-Through Deduction Permanent

Posted on May 13, 2019October 27, 2023 by Trey Jackson

The Real Estate Roundtable and a coalition of more than 100 business organizations yesterday sent a letter to Senate and House tax writers supporting legislation that would permanently extend the new 20 percent deduction for qualified pass-through business income. (Coalition letter, April 11)

Sen. Steve Daines (R-MT) introduced the Main Street Tax Certainty Act yesterday (S. 1149) to make the deduction permanent. The Senate bill mirrors legislation introduced in the House (H.R. 216) by Reps. Henry Cuellar (D-TX) and Jason Smith (R-MO).
The 20 percent deduction for pass-through business income (under Internal Revenue Code section 199A) is one of the most important – and complex – elements of the 2017 tax overhaul law. The deduction was designed to provide relief to the 30 million businesses in the United States that are not C corporations, and thus don’t benefit from the corporate tax cut. It is currently scheduled to sunset at the end of 2025.
The coalition letter states that the House and Senate bills to make the deduction permanent will help ensure tax relief for the millions of employers organized as partnerships, S corporations, and sole proprietorships. “Repealing this sunset will benefit millions of pass-through businesses, leading to higher economic growth and more employment,” according to the letter.
The Treasury Department on Jan. 18 issued final regulations and new guidance on the 20 percent deduction. Proposed regulations issued alongside the final rules ensure that investors who receive REIT dividends indirectly through an interest in a mutual fund are eligible for the pass-through deduction. (Roundtable Weekly, Jan. 25, 2019)
Yesterday, the IRS released a fact sheet (FS-2019-8) on the new section 199A deduction. Among the topics addressed are the qualified business income component, qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. (IRS news release, April 11)

The Section 199A deduction was a key topic of Roundtable President and CEO Jeffrey DeBoer’s testimony before the Senate Finance Committee in the fall of 2017, shortly before lawmakers released the first version of their tax overhaul. The Roundtable was closely involved in the legislative development of the provision. (Roundtable Weekly, Sept. 22, 2017)