Tax Reform Measures Taking Shape in Congress

Last Thursday, the Senate Finance Committee released draft tax reform legislation that they will move through committee later this week. The Senate bill was released after the House Ways and Means Committee passed its version of tax reform earlier that day.

The Senate draft differs in some aspects from the initial House version, which NAIOP President and CEO Thomas Bisacquino detailed last week in terms of its impact on the commercial real estate industry. Overall, both bills continue taxing commercial real estate development and investment on an economic basis, recognizing the long-term, capital-intensive nature of the industry.

Importantly, both bills would preserve the use of 1031 exchanges and continue the deductibility of business interest expense for the commercial real estate industry. Both would also lower corporate tax rates to 20 percent. Under the Senate bill, however, the rate reduction would be delayed until 2019. Some other differences of note for commercial real estate include:

  • Carried interest: The House version includes a three-year holding period for long-term gains treatment for carried interest. The Senate version released on Thursday does not change current policy on carried interest, but it is expected that some language would be added at their markup of the legislation this week.

  • Historic rehabilitation tax credit: The Senate draft reduces the current 20 percent credit for the rehabilitation of certified historic structures to a 10 percent credit, and repeals the 10 percent credit for the rehabilitation of non-certified structures constructed before 1936. The provision includes a 24-month transition rule. The House bill would entirely repeal the historic preservation credits.

  • Treatment of state and local tax deductions (SALT): The initial Senate draft eliminates all such deductions. The House version eliminates deductions for state and local taxes, and instead allows a deduction for property taxes capped at $10,000. Importantly, the House legislation was clarified to eliminate the ability of pass-through entities to deduct state and local taxes.

The full House is expected to vote and pass its legislation this week. The Senate version of tax reform is expected to come out of committee and go to the floor sometime after Thanksgiving. Both houses of Congress would then need to reconcile any differences and pass identical bills before sending a version to President Donald Trump.

NAIOP representatives are working with lawmakers and staffers to make sure they remain focused on delivering tax reform that would put more Americans to work, encourage business investment and capital formation, boost the overall economy and increase economic growth. As the legislation advances, we will continue to work with lawmakers to improve tax legislation and its impact on our industry.