Tag: Tax Policy

Senate Finance Committee Advances Energy Tax Bill with Enhanced Incentive for Energy Efficient Building “Retrofits”

Posted on by Trey Jackson

The Senate Finance Committee on Wednesday advanced an improved energy efficiency tax deduction for commercial buildings (Section 179D) that would make the incentive more usable for “retrofits” of older buildings, multifamily structures, and REITs. (Clean Energy for America Act (S. 1298), mark-up video and supporting documents)

 Section 179D & CRE 

  • The modified bill introduced by Chairman Ron Wyden (D-OR), above,  included amendments originally proposed by Sen. Ben Cardin (D-MD) to improve Section 179D. Overall, the bill would replace a patchwork of more than 40 energy tax policies with incentives for commercial and residential energy efficiency, clean electricity, and clean transportation fuels, and eliminate fossil fuel subsidies. 
  • The Section 179D enhancements would allow:
    • A retrofit project tax deduction for efficiency investments that lower an existing building’s energy consumption from a “pre-retrofit” baseline measured through EPA’s Portfolio Manager benchmarking tool;
    • All multifamily buildings to qualify for the Section 179D incentive;
    • REITs to benefit from the incentive by allowing the amount of the 179D tax deduction to reduce earnings and profits (“E&P”) in the year that energy efficient equipment is placed in service. 
       
  • The legislation also includes new rules requiring that taxpayers claiming Section 179D or other tax benefits in the bill comply with the Department of Labor’s prevailing wage standards and use qualified apprentices for at least 15 percent of the labor hours associated with any construction, alteration, or repair work on the project.  

Roundtable Recommendations

Davis-Bacon Prevailing Wage Concerns

  • The  Roundtable’s letter opposed new prevailing wage mandates proposed by the bill. The Roundtable warned that the excessive costs from Davis-Bacon compliance will greatly exceed the amount of any tax deduction that Section 179D might provide to incentivize an energy efficient construction project.
  • “Davis-Bacon has never been applied simply because the Internal Revenue Code provides a deduction to lower a private entity’s taxable income,” the letter stated. “The Roundtable recommends that the Clean Energy for America Act avoid unchartered territory that would transform the Internal Revenue Code into a ‘Davis-Bacon Related Act.’”
  • Committee Ranking Member Mike Crapo (R-ID), above, said, “I cannot support attaching labor requirements to energy tax policy. Linking labor policy to energy-related tax credits is unprecedented, and I have concerns not only about the policy, but also about the dangerous precedent it sets for amending the tax code.” 
  • After the committee voted 14-14 along party lines to advance the $260 billion energy tax bill, Chairman Wyden said he would place the bill on the Senate calendar. (CQ, May 26).
  • The bill’s prospects in the full Senate are uncertain, yet specific elements within the bill could be incorporated into a larger economic package proposed by President Biden. Wyden has not said whether he will work to roll the measure into the president’s infrastructure plans. (BGov, May 26)

Energy and tax policies affecting commercial real estate will be a focus of discussions during The Roundtable’s June 15 all-member Annual Meeting – and during its June 16 Tax Policy Advisory Committee (TPAC) and Sustainability Policy Advisory Committee (SPAC) Meetings.

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Real Estate Coalition Weighs In on Infrastructure Funding Options; Roundtable Addresses Tax Proposals and Like-Kind Exchanges

Posted on by Trey Jackson

The Real Estate Roundtable, along with 16 other national real estate trade organizations, submitted detailed comments to the Senate Finance Committee and House Ways and Means Committee, which held hearings this week on how to fund recent Biden Administration  infrastructure investment proposals.

Congressional Consideration

  • The coalition letter states, “As Congress considers options to pay for these investments, we urge policymakers not to erode longstanding tax rules that support job creation, capital formation and productive risk taking. Several of the tax proposals in the Administration’s infrastructure and human capital initiatives, unfortunately, would reduce real estate investment and diminish opportunities for startup businesses and those less advantaged.”
  • The comments focus on recent Biden Administration tax proposals, including:
    • Limiting taxpayers’ ability to defer gain that is reinvested in property of a like-kind;
    • Nearly doubling the tax rate on long-term capital gains;
    • Limiting capital gains treatment to invested cash and disregarding other forms of risk taken by partners; and
    • Making death a taxable event at far lower levels of income and potentially taxing the unrealized gain on appreciated assets not once but twice when an individual dies. 

Economic Impact 

Dramatic sunset over the US capitol in Washington DC
  • The letter states, “(President Biden’s) American Jobs Plan and American Families Plan offer credible initiatives to address many of our Nation’s most pressing needs, such as a modernized infrastructure, a more comprehensive approach to climate-related matters, and increased investments in housing, education, and childcare. We support aggressive steps to finance infrastructure needs, increase the supply of affordable housing, expand the economy, and promote job growth. Regrettably, some of the tax proposals accompanying the plans would reduce economic activity and opportunities and be completely counterproductive to the goals of the President’s initiatives.”
  • The coalition comments detail how the Biden tax proposals would undercut the tax base in localities throughout the country that rely on real estate taxes to finance schools, police, and other first responders. It also notes how the proposed taxes would diminish the incentive for private investment of capital in riskier real estate projects, such as affordable housing and redevelopment in struggling communities.
  • The letter also cites an April 2021 EY study commissioned by the Family Business Estate Tax Coalition, which includes The Real Estate Roundtable, that shows the impact of a specific proposal that would impose tax on transferred assets at death. The study found that repealing stepped-up basis and taxing unrealized gains at death would result in reduced job growth, lower wages, and a reduction in GDP of roughly $10 billion per-year. 

Tax Issues & LKEs 

  • Among the other industry leaders scheduled to participate in the May 25 event are the following Real Estate Roundtable Members:
  • A list of all participants is on the event website.
  • DeBoer was also quoted in Commercial Observer on May 18 on President Biden’s proposal to limit the use of Section 1031 like-kind exchanges. “Exchanges reduce the need for outside financing, leading to less leverage and debt on U.S. real estate. As a result, exchanges allow cash-strapped minority-, women- and veteran-owned businesses to grow their business by temporarily deferring tax on the reinvested proceeds,” DeBoer stated. 

President Biden’s proposals, congressional action and the industry response will be a focus of discussion at The Roundtable’s June 15 Annual Meeting and its Tax Policy Advisory Committee (TPAC) Meeting on June 16.

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Capitol Hill Lawmakers Consider Tax Measures to Finance Infrastructure and other National Priorities

Posted on by Trey Jackson

Democratic and Republican policymakers this week debated options for financing new investments in infrastructure and human capital, including tax proposals that could affect commercial real estate and incentives for capital formation.

Stepped-up Basis

  • A May 12 House Ways and Means subcommittee hearing focused on “Funding Our Nation’s Priorities: Reforming the Tax Code’s Advantageous Treatment of the Wealthy.” (Tax Notes, May 13)
  • Several hearing witnesses testified in favor of recent tax proposals to repeal stepped-up basis upon death, including a recent bill introduced by Sen. Chris Van Hollen (D-MD). (Roundtable Weekly, April 2. Van Hollen news release, March 29 and section-by-section bill explanation).
  • Concerns exist among Democrats about Biden’s tax plans, which range from eliminating stepped-up basis to raising the corporate tax rate and increasing tax rates on wealthy investors. (Washington Post, May 11 and RollCall, May 6)
  • More than a dozen House Democrats sent a May 6 letter to their leadership emphasizing how the elimination of stepped-up basis could threaten farms and family businesses. “Farms, ranches, and some family businesses require strong protections from this tax change to ensure they are not forced to be liquidated or sold off for parts, and that need is even stronger for those farms that have been held for generations,” according to the letter. [Rep. Jim Costa (D-CA) news release and Roll Call, May 6]
  • President Biden backed elimination of stepped-up basis during his campaign. (CNBC, “This is how Joe Biden will tax generational wealth transfer,” March 13, 2020 / CNBC, June 30, 2020 / ABC News, Oct. 8, 2019)
  • The Real Estate Roundtable, along with other members of the Family Business Estate Tax Coalition, recently released a report by EY’s Dr. Robert Carroll, Treasury’s former top tax economist, which found repealing stepped-up basis would result in reduced job growth, lower wages, and a reduction in GDP of roughly $10 billion per-year. 
  • The EY report, Repealing Step-Up of Basis on Inherited Assets:  Macroeconomic Impacts and Effects on Illustrative Family Businesses, concluded that, “Many family-owned businesses have value tied up in illiquid land, structures, and equipment that may need to be liquidated, or leveraged to finance loans, to pay for the new tax burden at death.”  The one-time capital gains tax could “limit[] the business’ viability as an ongoing concern.”

 Energy Tax Legislation

  • Senate Finance Committee Chair Ron Wyden (D-OR) in a May 12 statement said the committee will begin consideration this month of infrastructure and jobs legislation, starting with a markup on energy tax measures. “Following the clean-energy markup, the committee plans to consider additional key pieces of our jobs and infrastructure agenda,” according to the statement. (The Hill, May 12)
  • The Finance Committee on May 18 will hold a hearing entitled “Funding and Financing Options to Bolster American Infrastructure.”
  • Sen. Wyden last month introduced the Clean Energy for America Act, which would revamp tax incentives directed at buildings, electricity and transportation.  (Roundtable Weekly, April 30)
  • Wyden’s bill includes reforms to the 179D deduction for energy efficient commercial and multifamily buildings – with the value of the incentive increasing as more energy is conserved. (Text of the legislation, one-page summary of the bill and a section-by-section summary.)
  • A broad coalition of real estate, environmental, and manufacturing groups led by The Roundtable supports the E-QUIP Act (H.R. 2346), which proposes “accelerated depreciation” for high-performance equipment installed in commercial and multifamily buildings. The coalition is urging Senate and House policymakers to include this measure as part of any “green tax” package that may be folded into larger infrastructure spending legislation. (Roundtable Weekly, April 2)
  • Roundtable President and CEO Jeffrey DeBoer emphasized an important distinction between energy incentives affecting CRE. “The 179D incentive relies on the energy performance of an entire building, without accounting for its age or tenant usage. By contrast, E-QUIP focuses on an individual building’s components – each one capable of contributing to a reduction in overall energy consumption. The E-QUIP incentive would therefore therefore apply to all buildings more efficiently, despite their age or tenant base, and increase energy performance across all asset classes.”

Like-Kind Exchanges

  • Among the many tax issues on The Roundtable’s 2021 policy agenda is the Biden administration’s proposal to cap real estate profits that can be deferred in a 1031 like-kind exchange to $500,000.
  • On May 11, The Wall Street Journal reported on the significant impact the proposal would have on the multifamily market, which utilizes 1031 exchanges as a primary source of capital.  Additionally, the May 7 issue of Realtor Magazine focused on how the 1031 proposal could present adverse consequences for communities and their economic development.  
  • The Real Estate Roundtable, along with 30 other national real estate, housing, environmental, farming, ranching, forestry, and financial services-related organizations, wrote to key policymakers on March 16 to raise awareness of how 1031 exchanges support jobs, economic development, local communities, property taxes, and the supply of rental housing, among other benefits. (Roundtable Weekly, March 19)
  • Between 10-20 percent of all commercial real estate transactions involve a like-kind exchange. The coalition’s letter describes how like-kind exchanges under section 1031 of the tax code helped stabilize property markets at the height of the COVID-19 lockdown, and will continue to facilitate repurposing of real estate assets in the post-COVID economy. 
  • Roundtable Senior Vice President & Counsel Ryan McCormick on May 18 will discuss the economic contributions of like-kind exchanges to the U.S. economy during an Institute for Portfolio Alternatives (IPA) Summit session. 

REITs

  • Reps. Tom Suozzi (D-NY) and Darin LaHood (R-IL) on May 11 introduced the bipartisan Parity for Non-Traded REITs Act (H.R. 3123) to boost investment in commercial real estate and infrastructure. In 2015, Congress increased the amount of equity that a foreign shareholder can invest in a U.S. exchange-traded REIT to 10 percent without generating tax liability under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).  The Suozzi-LaHood bill would extend the same 10 percent FIRPTA exemption to publicly offered but non-exchange-traded REITs.
  • “Given the current economic environment and the need for additional investment in U.S. real estate, updating existing FIPRTA rules applicable to public non-traded REITs will expand available capital, create parity with exchange traded REITS, and level the playing field for investors – thereby encouraging more foreign investment in U.S. real estate and generating economic and job growth at home,” said Rep. LaHood. (Institute for Portfolio Alternatives, May 7)

Roundtable President and CEO Jeffrey DeBoer will discuss the wide-range of tax proposals noted above, and others addressed in the organization’s 2021 policy agenda, during a May 18 Marcus & Millichap webcast, “Tax Reform: a CRE Game Changer?”

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Biden Proposes $1.8 Trillion “American Families Plan” Funded by Tax Increases

Posted on by Trey Jackson

Biden Joint Address to Congress

President Biden on April 28 outlined a $1.8 trillion American Families Plan that would fund an expansion of government support for child care, education, paid family leave and other “human infrastructure” initiatives through new tax increases. [Full text of the President’s prepared remarks and CNBC, April 29)

  • Biden proposes to pay for The American Families Plan with tax increases on upper-income taxpayers and new tax enforcement initiatives, including significantly higher tax rates on capital investment. Collectively, the Administration claims these changes would raise $1.5 trillion over 10 years. (American Families Plan Fact Sheet)

Roundtable Response

Jeff DeBoer RER Meeting

  • Real Estate Roundtable President and CEO Jeffrey DeBoer, above, said,  “President Biden’s American Jobs Plan and American Families Plan offer very credible initiatives to address some of our nation’s most pressing needs—a modernized infrastructure, a more comprehensive approach to climate-related matters, as well as increased investments in housing, education and child care.”
  • DeBoer also warned, “As policymakers consider the options to raise this needed revenue, we strongly urge that the focus be on broad-based tax increases that do minimal damage to job creation, risk taking and entrepreneurial activity. Unfortunately, particularly when considered in total, many of the tax proposals accompanying the American Jobs Plan or American Families Plan would reduce economic activity, impede job growth, and diminish opportunities for startup businesses and those less advantaged. The current law in these areas may be in need of review and reform, but repealing these incentives is simply not wise.” (Full Roundtable statement)

Specific Tax Increases

Oval Office Meeting

  • The tax proposals in the American Families Plan include increasing the top tax rate on ordinary income from 37 percent to 39.6 percent, which would impact single filers with income above about $453,000 and married couples with income above approximately $509,000, a White House official said. (The Hill, April 29)
  • Raising the tax rate on capital gains and dividends from 20 percent to 39.6 percent for households making over $1 million. (Tax Foundation, April 23)
  • Restricting gain deferred through like-kind exchanges to no more than $500,000 per-year. (Wall Street Journal, April 28)
  • Stepped-up basis: Taxing unrealized gains in excess of $1 million ($2.5 million per couple) at death, but with an exception for family-owned businesses passed on to heirs who continue to run the business. (American Families Plan Fact Sheet)
  • Reforming the current tax treatment of carried interest: (GlobeSt, April 29)
  • Expanding the 3.8% Medicare tax on earnings and net investment income to apply to additional activities currently outside the scope of the tax.
  • Permanently extending the 2017 Tax Cuts and Jobs Act (TCJA) provision, section 461(l), that restricts the deductibility of active pass-through business losses to $250,000 for an individual or $500,000 for a married couple.
  • Notably absent from the American Families Plan are any proposals related to reinstating the deduction for state and local taxes (SALT).

What’s Next

  • Several Senate Democrats have signaled they do not support all the tax increase proposals. Sen. Sen. Joe Manchin (D-WV), a pivotal centrist lawmaker, along with Sens. Mark Warner (D-VA) and Bob Menendez (D-NJ), members of the Senate Finance Committee, voiced concerns that higher capital gains rates could slow economic growth, according to the Wall Street Journal. 
  • Menendez commented on the proposed increase, “For me, it is what you’re doing, the totality of the package, and how does it affect the ability of growth to continue to take place. That’s how I’m judging it. Right now it seems like a rather high rate to me.”

President Biden plans to host his first meeting since taking office with House and Senate leaders from both parties on May 12, according to a White House official. (BGov, April 29)

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Senate Hearings Focus on Clean Energy and Tax Policy, Climate Bank

Posted on by Trey Jackson

Senate Finance Committee Chairman Ron Wyden (D-OR)

Senate hearings this week indicate that clean energy financing and tax policies considered in the current Congress might significantly affect commercial real estate. (Tax Notes, April 29)

Senate Finance Focus

  • Senate Finance Committee Chairman Ron Wyden (D-OR), photo above, opened an April 27 hearing by noting how President Biden’s goal of cutting carbon emissions in half by 2030 is driving clean energy policy. Wyden stated, “The reality is, a debate on energy and transportation is largely a debate on tax policy. That puts this committee in the driver’s seat when it comes to job-creating legislation that addresses head-on the existential challenge of the climate crisis.”
  • Sen Wyden also remarked about legislation he introduced last week – the Clean Energy for America Act, which would revamp tax incentives directed at buildings, electricity and transportation. Among other things, the bill would reform the 179D deduction for energy efficient commercial and multifamily buildings – with the value of the incentive increasing as more energy is conserved. (Text of the legislation, one-page summary of the bill and a section-by-section summary.)
  • Committee Ranking Member Sen. Mike Crapo during his opening remarks noted draft legislation that he unveiled the day before with committee member Sheldon Whitehouse (D-RI) – the Energy Sector Innovation Credit (ESIC) Act. ESIC is an incentive that would “target tax credits for innovative clean energy technologies,” Crapo said. (SFC news release).

E-QUIP Accelerated Depreciation

HVAC equipment

  • Separately, a broad coalition of environmental, manufacturing, and real estate groups led by The Roundtable supports the E-QUIP Act (H.R. 2346), which proposes “accelerated depreciation” for high-performance equipment installed in commercial and multifamily buildings. The coalition is urging policymakers to include this measure as part of any “green tax” package that may be folded into larger infrastructure spending legislation. (Roundtable Weekly, April 2)
  • Roundtable President and CEO Jeffrey DeBoer emphasized an important distinction between the energy incentives affecting CRE. “All building owners are intensely focused on operations and technologies to reduce energy consumption. Yet the policy discussions in Washington frequently don’t reflect the reality of these efforts to make commercial real estate properties more sustainable. It is retrofitting the existing building stock, not new construction, where energy savings and policy incentives are most challenging.” DeBoer said.
  • He added, “The 179D incentive fails to reflect the diverse vintage and tenant base in buildings. The E-QUIP incentive accommodates existing buildings by targeting the addition of high-performance, energy saving components. Combining the two incentives would make most sense.” 

National Climate Bank

Senator Chris Val Hollen (D-MD)

  • The Senate Environment and Public Works Climate Subcommittee on April 27 held a “Legislative Hearing on S.283, National Climate Bank Act” focused on how a national climate bank, also known as an “energy accelerator,” would invest in renewable energy technology.
  • Sen. Chris Van Hollen (D-MD), photo above, co-author of S. 283 with Subcommittee Chairman Sen. Ed Markey (D-MA), testified at the hearing, “… we need a National Clean Energy Accelerator … so we can turbocharge private investment, fortify our energy grid, and create millions of clean energy jobs – including in those communities where fossil fuel plants have closed.”
  • Van Hollen’s legislation is supported conceptually by President Biden’s American Jobs Plan, which recommends a $27 billion “accelerator” financing platform to mobilize private investment into building retrofits and other clean energy projects.

  • White House National Economic Council Director Brian Deese recently discussed the creation of a climate bank in an interview with Roundtable President and CEO, Jeffrey DeBoer for The Roundtable’s April 20 Spring Meeting. (Roundtable Weekly, April 23).

Additionally, the White House on April 27 announced policy actions to advance the expansion and modernization of the energy grid. National Climate Advisor Gina McCarthy noted, “After the Texas transmission debacle this winter, no one can doubt the need to invest in our electric grid. The steps that the Departments of Energy and Transportation are taking today, when combined with the grid investments outlined in the American Jobs Plan, will turbocharge the building of major new electricity transmission lines that will generate new jobs and power our economy for years to come.”

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Congressional Progressives Propose Legislation to Tax Unrealized Gains at Death as Republican Bill Seeks Permanent Repeal of Federal Estate Tax

Posted on by Trey Jackson

Sen. Chris Van Hollen (D-MD)

Several progressive members of Congress, led by Senator Chris Van Hollen (D-MD), above, on March 29 proposed legislation that would tax appreciated and unrealized capital gains when property is transferred at death or by gift. Meanwhile, Senate Republicans on March 9 reintroduced legislation to repeal permanently the federal estate and gift tax, commonly known as the “death tax.” (Wall Street Journal, March 29 and Fox Business, March 11).

Stepped-Up Basis

Why It Matters

Philadelphia, PA skyline

  • Repealing stepped-up basis and treating death as a taxable event would be particularly burdensome for real estate owners because of the illiquid and indivisible nature of real assets relative to a holdings like a portfolio of publicly traded stock. 
  • The legislation could force owners to sell properties if no cash income is available to pay the tax.  The bill would also pull capital out of real estate markets at a time when it will be needed to help repurpose existing properties in the post-pandemic era. 

Estate Tax Repeal 

  • Senate Republicans on March 9 unveiled the Death Tax Repeal Act of 2021 (S. 617) to permanently repeal the federal estate tax. The legislation, introduced by Sens. John Thune (R-SD.) and John Kennedy (R-LA) would eliminate the federal tax levied on estates worth more than $11.7 million after the death of the owner. (Sen. Kennedy news release)
  • Reps Jason Smith (R-MO) and Sanford Bishop (D-GA) on March 10 introduced companion legislation in the House. (Rep. Smith news release)
  • The Real Estate Roundtable, as part of the Family Business Estate Tax Coalition (FBETC), this week wrote to Sen. Thune and the House co-sponsors in support of S. 617 and the permanent repeal of the estate tax. (Coalition letter, April 2) 
  • The letter states that the FBETC “… supported the temporary estate tax relief in the Tax Cuts and Jobs Act (TCJA), which doubled the exemption to approximately $11.7 million for tax year 2021 and indexed future increases for inflation through 2025. However, without further congressional action, the temporary increase in the exemption amount will expire… repeal is the best solution to protect all family-owned businesses from the estate tax.” 

Proposals to raise the tax burden on appreciated property at death could be considered in the next wave of domestic economic legislation.  President Biden is expected to roll out more tax proposals aimed at upper-income taxpayers over the next few weeks. 

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Bipartisan House Bill Encourages Equipment Upgrades in Commercial and Multifamily Buildings

Posted on by Trey Jackson

Capitol Dome Stormy weather

Roundtable-supported legislation that would accelerate depreciation for high performance upgrades in commercial and multifamily buildings – creating jobs and reducing the built environment’s carbon footprint – was reintroduced this week by House Ways and Means Committee members Brad Schneider (D-IL) and Tom Rice (R-SC).

The E-QUIP Approach

  • The bipartisan Energy Efficient Qualified Improvement Property (E-QUIP) Act (H.R. 2346), originally introduced last December by Reps. Schneider and Rice, encourages energy efficiency building retrofits to replace aging and obsolete HVAC, lighting, windows, roofs, and windows with state-of-the-art systems.
    • The Real Estate Roundtable has rallied a unique coalition of environmental, manufacturing, and business groups to support the bill. The coalition sent an April 1 letter to members of the House Ways and Means Committee, and the Energy and Commerce Committee, to enact the E-QUIP Act and include it in any infrastructure package.
    • Roundtable President and CEO Jeffrey DeBoer stated, “The E-QUIP Act checks all of the boxes for smart energy, climate, and economic policy. Installation of high performance HVAC, lights, windows, and other building components will modernize aging buildings, save businesses billions of dollars on their energy bills, create tens of thousands of jobs, and avoid carbon emissions equal to taking 22 million cars off the road for a year.”
    • DeBoer added, “The E-QUIP Act can also encourage state-of-the-art retrofits that enhance outdoor air ventilation rates — a key practice to improve a building’s health and indoor air quality, according to the best available science.”

    Support for an Energy Efficient Economy

    American Council for an Energy-Efficient Economy E-Quip

    • The American Council for an Energy-Efficient Economy (ACEEE) has  prepared a fact sheet and analysis that estimates the climate, energy, and jobs benefits of E-QUIP Act retrofit projects: 
      • 130,000 net additional job-years.
      • $15 billion energy bill savings.
      • 100 million tons of carbon dioxide emissions avoided – or the equivalent emissions from 560,000 rail cars full of coal or taking 22 million cars off the road for one year.
    • Key elements of the E-QUIP Act are:
        
      • Elective 10-year, straight-line cost recovery period for a new category of depreciable property that meets the E-QUIP Act’s high-performance standards.
      • Available to replace or retrofit systems and components in buildings that are at least 10 years old.
      • Certification requirement that E-QUIP is designed, installed, operated, and maintained by credentialed professionals.
      • Five-year duration of incentive.
    • A uniform 10-year depreciation period for components that meet E-QUIP standards would simplify the current cost recovery “patchwork” in the federal tax code for building investments.

    The E-QUIP Act and advocacy efforts to include it as part of infrastructure legislation will be a focus of discussion during The Roundtable’s April 20 (Remote) Spring Meeting.

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    Biden Administration Preparing Multitrillion Economic Growth Proposal; Transportation Secretary Buttigieg Testifies Gateway Project Has “Sense of Urgency”

    Posted on by Trey Jackson

    Oval Office Infrastructure meeting Biden Buttigieg others

    President Biden will unveil an ambitious economic growth plan on March 31 that may cost up to $4 trillion to fund his administration’s wide-ranging goals on infrastructure, climate and domestic policies. (Reuters, March 24 and Bloomberg News, March 25) 

    • The administration’s legislative effort may be split into two parts – an initial package that funds transportation projects with a focus on climate change, and a second that addresses domestic priorities such as universal prekindergarten, national childcare and free community college tuition.  (Wall Street Journal and Washington Post, March 22, New York Times March 25)
    • Congressional Democrats are working on a filibuster-proof fiscal 2022 reconciliation bill to advance President Biden’s economic recovery plan, along with a five-year surface transportation reauthorization. Funding for the current surface transportation bill expires Sept. 30. (Law360, March 22)
    • Axios reported on March 23, the White House is considering using the budget reconciliation process two more times this year, after using it to pass the recent $1.9 trillion pandemic relief package without any Republican support. Enacting three separate reconciliation packages would be unprecedented, and require a ruling from the Senate parliamentarian that proposed legislation is eligible for reconciliation under the Congressional Budget Act of 1974. 

    Focus on Gateway Project: 

    Gateway Project map

    • The “Gateway” rail tunnel project between New York City and New Jersey is a high priority for the Biden administration that is being treated with a “sense of urgency,” according to Transportation Secretary Pete Buttigieg, who testified March 25 before the House Transportation and Infrastructure Committee. (BGov, March 25)
    • “This is a regional issue, but one of national significance because if there were a failure in one of those tunnels, the entire U.S. economy would feel it,” Buttigieg said. He added that federal and state officials are working “to develop the next administrative draft of the environmental impact statement, which is a big part of what needs to be completed in order to get there.”
    • Buttigieg also acknowledged that funding the administration’s infrastructure transportation goals must look to other revenue sources than borrowing. “There is a simple set of places we can look: user fees, general fund or other tax sources as Congress has done to fill gaps in Highway Trust Fund in recent years or borrowing,” Buttigieg testified.

     How to Pay: 

    Yellen and Powell remote testimony

    • Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell testified jointly this week before House and Senate committees on economic conditions and pandemic relief. (Wall Street Journal, March 23)
    • Yellen testified before the House Financial Services Committee on March 23 that future taxes are needed to fund infrastructure programs. “A package that consists of investments in people, investments in infrastructure, will help to create good jobs in the American economy, and changes to the tax structure will help to pay for those programs.” She added, “We do need to raise revenues in a fair way to support the spending that this economy needs to be competitive and productive.” (Financial Times, March 23)
    • Chairman Powell responded to a concern from House Committee Member Blaine Luetkemeyer (R-MO) that Fed data indicates 51 percent of current commercial real estate debt is held by banks and that community banks have a higher concentration of these loans. Powell stated, “We’re monitoring CRE very carefully. Its concentrations arise principally in smaller banks, and we’ll have to monitor it carefully as we allow moratoriums to elapse. We’re well aware of the issue and we’ll be sure to move very, very carefully when we do address that.”
    • The two regulators also testified before the Senate Banking Committee on March 24. Treasury Secretary Yellen stated that the federal government can afford to invest trillions, despite the national debt. “My views on the amount of fiscal space that the United States, I would say, have changed somewhat since 2017. Interest payments on that debt relative to GDP have not gone up at all, and so I think that’s a more meaningful metric of the burden of the debt on society and on the federal finances,” Yellen said. (The Hill, March 24)

     Taxes & CRE: 

    Taxes and CRE Ryan McCormick

    • A March 25 BisNow webinar on Tax Policy and the Impact on CRE featured Roundtable Senior Vice President and Tax Counsel Ryan McCormick, bottom left in photo. The webinar focused on the outlook for real estate tax policy in 2021, with an emphasis on like-kind exchanges and opportunity zones.
    • Other participants included Ja’Ron Smith, former Deputy Assistant to President Trump; Capital Square Founder and CEO Louis Rogers; and David Franasiak, Principal at Williams & Jensen. (Watch Video)

    Congress leaves Washington today for a two-week recess. “When the Senate returns to session, our agenda will be no less ambitious than it was over the past few months,” Senate Majority Leader Chuck Schumer (D-NY) said yesterday. (The Hill, March 25 and New York Times, March 26) 

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    Broad Coalition Highlights Economic, Social, and Environmental Benefits of Like-Kind Exchanges

    Posted on by Trey Jackson

    The Real Estate Roundtable, along with 30 other national real estate, housing, environmental, farming, ranching, forestry, and financial services-related organizations, wrote to key policymakers on March 16 to underscore the vital importance of real estate like-kind exchanges.

    The letters to Treasury Secretary Yellen and the chairmen and ranking members of the congressional tax-writing committees underscore the many benefits of like-kind exchanges to the U.S. economy and the health of real estate markets. The letters also show how the exchanges improve the supply of housing, retirement security, environmental conservation and the preservation of family-owned farms and ranches. 

    Why It Matters

    • Between 10-20 percent of all commercial real estate transactions involve a like-kind exchange.  The coalition letters describes how like-kind exchanges under section 1031 of the tax code helped stabilize property markets at the height of the COVID-19 lockdown, and will continue to facilitate repurposing of real estate assets in the post-COVID economy.
    • The letters provide supporting data showing how like-kind exchanges allow businesses to grow by reinvesting gains on a tax-deferred basis in new and productive assets. 
    • Like-kind exchanges create a ladder of economic opportunity for minority-, veteran-, and women-owned businesses and cash-poor entrepreneurs that may lack access to traditional sources of financing, according to research referenced in the letters.

    Groundbreaking Research:

    • The letters highlight original research by Professors David Ling (Univ. Fla.) and Milena Petrova (Syracuse U.) on the economic impact of like-kind exchanges.  The study commissioned by The Real Estate Roundtable and other organizations was published in two installments in the peer-reviewed Journal of Real Estate Literature here and here and more recently updated with current data.

    • The academic studies have found that exchanges spur capital expenditures, increase investment, create jobs for skilled tradesmen and others, reduce unnecessary economic risk, lower rents, support property values, and generate substantial state and local tax revenue.
    • Roughly 40 percent of like-kind exchanges involve rental housing.  The coalition emphasized in its letter that section 1031 is an important source of capital for affordable and workforce housing. Farmers and ranchers use like-kind exchanges to combine acreage, acquire higher-grade land, mitigate environmental impacts, and otherwise improve operations.  Land conservation organizations rely on exchanges to preserve open spaces for public use or environmental protection.

    The Roundtable’s Tax Policy Advisory Committee (TPAC) will continue working to raise awareness of the role that like-kind exchanges play in supporting the health and stability of U.S. real estate and real estate markets. 

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    Biden Administration Floats Tax Increases to Pay for Infrastructure as Policy Focus Shifts to Economic Growth

    Posted on by Trey Jackson
    The White House
    Biden Administration and The White House

    The Biden administration is considering increasing the corporate tax rate and the individual rate for high earners as it deliberates how to structure its next major legislative initiative – a sprawling “Build Back Better” economic growth package that may cost far more than the $1.9 trillion coronavirus-relief bill enacted last week. (BGov, March 15 and Roundtable Weekly, March 12) 

    Why It Matters: 

    • The first major tax increase since 1993 could be proposed as one method of funding Biden’s ambitious infrastructure plan. Heather Boushey, a member of the White House Council of Economic Advisers stated, “There is a long list of things that we need to invest in,” including “broadly defined” infrastructure, the power grid, and a plan to bolster child and elder care. (BGov and Bloomberg Television interview, March 15) 
    • Biden’s tax plan would aim to provide relief for middle-class households, including those in the $110,000-a-year income range, according to Bharat Ramamurti, deputy director of the White House National Economic Council. “The key here is that the president believes strongly that the biggest corporations and those folks who have done extremely well over the last several decades should pay a bit more,” Ramamurti said. (Bloomberg Television interview, March 16)
       
    • Senate Minority Leader Mitch McConnell (R-KY) this week rejected any potential tax increases to fund President’s Biden infrastructure plan. (The Hill, March 16)
       
    • Democrats are considering using the budget reconciliation process to pass an infrastructure bill, the same process used to pass the pandemic relief bill in the Senate by a simple majority in the 50-50 Senate. Under normal budget rules, the support of at least 10 GOP senators would be needed to defeat a 60-vote filibuster. Democrats will only be able to use reconciliation for one more bill this year. (The Hill, March 15)
    • The enormous scope of the administration’s legislative goals may lead to the possible separation of their economic growth package into as many as three bills. (Politico Playbook, March 18) 

    Congressional Legislation:

    • Expanding allowable investment opportunities for REITs could increase private sector infrastructure and help revitalize distressed retail businesses. The Roundtable-supported, bipartisan Retail Revitalization Actof 2021 (H.R. 840) – introduced Feb. 4 by House Ways and Means Members Brad Schneider (D-IL) and Darin Lahood (R- IL) – would modernize real estate investment trust tax provisions to permit REITs to invest equity in struggling commercial tenants that have been harmed by the COVID-19 pandemic. (News release, Feb. 4)

       


    • H.R. 840 is the focus of a March 16 Tax Notes article entitled, “Modifying REIT Rules Could Aid Recovery and Infrastructure Plans.”
    • House Energy and Commerce (E&C) Committee Chairman Frank Pallone, Jr. (D-NJ) has scheduled a March 22 hearing on the committee’s recently released Leading Infrastructure For Tomorrow’s (LIFT) America Act, which would provide more than $312 billion in funding for broad range of projects. (E&C news release, March 11 and Chairman’s Memorandum, March 18)
    • House E&C Committee Republicans released a clean energy and climate package this week in response to the E&C Democrats’ LIFT legislation. (E&C Republicans news release, March 15)
    • Sen. Elizabeth Warren (D-MA) and Rep. Alexandria Ocasio-Cortez (D-NY) on March 18 introduced the BUILD GREEN Infrastructure and Jobs Act, a $500 billion proposal to shift U.S. transportation away from fossil fuels by 2050. 

    What’s Next:

    • More legislation is expected to be introduced that will focus on highways, mass transit and other surface transportation, as well as tax-related energy and infrastructure measures. House bills are expected from Transportation and Infrastructure Committee Chairman Peter DeFazio (D-OR) and Ways and Means Committee Chairman Richard Neal (D-MA).
       
    • A “by-the-mile” vehicle usage tax is also under consideration to fund transportation infrastructure projects. Transportation Secretary Pete Buttigieg is considering funding highway projects with a fee based on how many miles someone travels instead of how much gasoline they pump. Buttigieg has stated the administration will move swiftly to reauthorize the surface transportation highway bill, which is set to expire at the end of September. (BGov, March 15) 
    • The Roundtable is part of the Build by the 4th coalition, led by the U.S. Chamber of Commerce, which encourages the Biden Administration and the new Congress to pass a comprehensive infrastructure deal by Independence Day 2021. 

    Infrastructure investment will be a focus of discussion between commercial real estate leaders and policymakers during The Spring Roundtable Meeting on April 20 in Washington, DC. 

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