APARTMENT ADVOCATE
NATIONAL APARTMENT ASSOCIATION / NATIONAL MULTIFAMILY HOUSING COUNCIL
Tax Reform Blueprint : The Good , the Trade-Offs and the Bad News on LIHTC
House Republicans released their tax reform blueprint on June 24 , which has significant implications for owners , operators and developers of apartment housing . NAA / NMHC are currently evaluating the blueprint and see some undeniable positives in the form of lower rates on business income and capital gains , some trade-offs on cost recovery and the unacceptable elimination of the Low-Income Housing Tax Credit ( LIHTC ). Although the blueprint has little chance of enactment this year , it is likely to form the basis for legislation House Republicans hope to move in 2017 .
Of course , the next president , and the party controlling the Senate following this November ’ s elections , will also have a critical role to play in shaping any tax reform legislation that may ultimately be enacted .
NAA / NMHC would appreciate any reaction you may have to the blueprint as we frame our reaction . Here ’ s a description of the proposals in the blueprint that would have the most impact on the apartment housing industry :
Tax Rate on Pass-Through Businesses Income : The apartment housing industry is dominated by “ flow-through ” entities ( e . g ., LLCs , partnerships , S Corporations , etc .) instead of publicly held corporations . This means that the company ’ s earnings are passed through to the partners who pay taxes on their share of the earnings on their individual tax returns . The blueprint would tax pass-through business income at a 25 percent rate , which is down from a current-law maximum of 39.6 percent . Notably , the blueprint would tax individual wage income at a maximum rate of 33 percent with intermediate rates of 12 percent and 24 percent .
Capital Gains Tax Rates and Carried Interest : The blueprint would tax capital gains , dividends , and interest at ordinary income tax rates subject to a 50 percent exclusion . Thus , capital gains would effectively be taxed at maximum rate of 16.5 percent , which is lower than the 20 percent currentlaw maximum rate ( not including the 3.8 percent net investment income tax ). The proposal does not indicate any changes to the tax treatment of carried interest , seemingly leaving such income subject to the proposed capital gains rules .
Depreciation , Business Interest Deductibility and Like-Kind Exchanges : The proposal would radically overhaul the tax treatment of depreciation , business interest deductibility and like-kind exchanges . Most notably , business investments with the exception of land purchases , but including the purchase or construction of an apartment building , would be fully expensed instead of de-
34 | TRENDS • AUGUST 2016 www . aamdhq . org