Tax Reform

The last comprehensive revision of the U.S. tax code was in 1986, when President Ronald Reagan signed the bipartisan Tax Reform Act of 1986.  Since then, income tax rates have increased and the code has become more complex, leading many political leaders to call for a rewrite and updating of the current tax code.  Goals for tax reform are varied, but include simplification, increasing the global competitiveness of American businesses, promoting job growth, and increasing the fairness of the tax system.

Download NAIOP’s Position on Tax Reform  


While the 1986 Tax Reform Act lowered tax rates and simplified the code by eliminating preferences and deductions (known as “broadening the base”), many changes have occurred since that time, and the code has again become the target of criticism that it is out-of-date and inefficient, harmful to our international economic competitiveness, and not conducive to job growth. There have been numerous tax reform attempts since 1986, but political consensus on policy direction is difficult. Many industries that had made investment decisions based on current tax law would face severe economic disruption depending on the nature of tax reform.

Many elements of tax reform plans introduced in Congress over the last few years would have been extremely harmful to the commercial real estate industry. Some would have substantially lengthened existing depreciation rules for commercial buildings, eliminated or severely limited real estate like-kind exchanges under Section 1031 the tax code, and ended capital gains treatment for real estate partnership “carried interests”.

Congress passed the “Protecting Americans from Tax Hikes Act of 2015” in December of 2015, achieving many of NAIOP’s long-sought tax goals, and setting the stage for subsequent tax reform efforts.  In June 2016, Speaker of the House Paul Ryan (R-WI) and House Ways and Means Committee Chairman Kevin Brady (R-TX) released their Blueprint for Tax Reform, a far-reaching plan to reorient fundamentally the current tax system. Aspects of the House Blueprint would have broad implications for commercial real estate. Depreciation, for example would be replaced with immediate full expensing of tangible property and real property. The plan would eliminate the tax deductibility of business interest expense. Major questions on the continuation of Section 1031 tax-deferred like-kind real estate exchanges and the tax treatment of partnership carried interests are left unanswered.  


Many Senate Republicans have voiced concern and opposition to elements of the House GOP Blueprint, including a controversial “border adjustment tax” that many fear would increase the cost of imported goods. As a candidate, President Trump promised tax reform and tax cuts, putting forth a broad plan for the political campaign, but the White House has not yet put forth specific legislative tax proposals that they have submitted to Congress for consideration. Both the White House and the House GOP leadership have stated they want to have tax reform legislation passed by August 2017.


NAIOP supports reform of the tax code to make it simpler and to foster economic growth. However, we oppose proposals that would unfairly disadvantage investment in real estate as compared to other asset classes. We believe a meaningful differential between tax rates on capital gains and ordinary income is vital to the real estate industry. We oppose measures to eliminate or curtail the use of Section 1031 tax-deferred like-kind exchanges, which would cause severe economic disruption in commercial real estate markets, or changing the capital gains tax treatment of carried interest compensation.


NAIOP believes tax reform should:

  • Promote Economic Growth and Capital Formation. A simplified tax code should lead to increased economic growth and productivity across all economic sectors, without distorting investment decisions to the detriment of the real estate industry. Tax provisions should be made permanent, creating a predictable investment environment that promotes long-term planning and capital investments.
  • Establish Rational Cost-Recovery and Depreciation Rules. Cost recovery and depreciation rules of structures and their component parts, including qualified leasehold improvements, should reflect the useful economic life of these structures.
  • Recognize the Importance of Pass-through Entities. Real estate development and investment is conducted primarily through businesses organized as “pass-through entities” (partnerships, limited liability companies and others), which pay taxes at the individual (as opposed to the corporate) tax rate. Therefore, lowering corporate tax rates while broadening the tax base could result in higher taxes on real estate businesses.
  • Maintain Deferral of Taxes for Like-kind Exchanges. Current practice on tax deferral of like-kind property exchanges should be maintained. Curtailing this ability, which has been in effect for nearly a century, would severely reduce transactions and needed investment in commercial real estate.
  • Treat Real Estate Carried Interest as Capital Gain. Real estate partnership “carried interest” should be treated as capital gains. Unlike a salary, a carried interest in the real estate context is not guaranteed income, but is dependent on the ultimate success of a venture that results in a capital asset being developed. It is a reward for undertaking the risk inherent in real estate development.
  • Provide Adequate Transition Rules. Changes in tax rules should not be applied retroactively and should only apply to property not yet placed in service.  A well-thought out transition regime that minimize negative impact on real estate markets should be provided.