NAIOP advocates for effective legislation on behalf of its members. As the recognized leader for commercial real estate, NAIOP furthers the industry’s public policy agenda by actively working with elected officials on legislative issues affecting its welfare.
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Tax Reform Proposal Targets Depreciation, Raises Concern
Senate Finance Committee chairman Max Baucus (D-Mont) released proposals last week targeting provisions in the tax code that would be damaging to the commercial real estate industry.
In one of three discussion documents, Baucus proposes substantially altering existing depreciation rules, subjecting both residential and nonresidential property to a cost recovery of 43 years, with leasehold (tenant) improvements currently qualifying for a 15-year recovery depreciating over 43 years as well. Additionally, the Baucus draft proposal calls for eliminating so called “like-kind exchanges” (Section 1031) and repealing the tax deduction for energy efficiency improvements made to commercial property (Section 179D).
NAIOP supports much shorter depreciation schedules for leasehold improvements that are more in line with their true useful economic life, and supports continuation of tax-deferred like-kind exchanges and energy-efficiency incentives. Baucus’ proposed changes would raise more than $700 billion in new revenue over 10 years, which supporters argue could be used to offset the cost of reducing the corporate tax rate. Many real estate ventures, however, are either partnerships or limited liability companies, which would pay taxes at much higher ordinary income rates.
As the first session of the 113th Congress draws to an end, NAIOP continues to engage policymakers in both the Senate and the House on tax reform so that lawmakers understand the importance of the commercial real estate development to the nation’s economy, and to ensure that final tax legislation is not damaging to the industry.