Impactful Upcoming Tax Reforms That Multifamily Should Remain On The Pulse Of

By: Aaron Cohen

Multifamily has always been an industry of cycles with ups and downs tied to international trade, tax policy and market trends, ebbing and flowing with the tides of change in DC and New York.

As 2017 fires to a start change is in the air and despite your side of the fence, it worth staying tuned to remain out front and able to adapt and/or capitalize.

Industry experts like the National Multi Housing Council and National Apartment Association have put Tax reform at the head of the sleigh, as our nation’s housing needs hang in the balance. Will tax reform help or hurt the apartment industries ability to meet those needs?

In June, the Ways and Means Republican team from the House released in June a blueprint for tax reform.

The National Multi Housing Council described this blueprint in brief by stating:

“The proposal would reduce the top tax rate on the pass-through businesses that dominate the apartment sector to 25 percent; enable all investment except for land to be immediately deducted from income instead of depreciated; and eliminate the deductibility of business interest.” The article can be found at What Would Tax Reform Mean for Multifamily? by: Matthew Berger, and breaks down the issue into meticulous detail.

The jury is still out as to how much actual change will take effect on our industry, but all agree that tax reform must remain at the forefront of our thoughts as we stride forward into 2017.

Food for thought, here is some of what was focused on in the House’s Blueprint

1)   Repeal of Estate Tax: Currently the law has an exemption level of $5.45 Million with at 40% top tax rate on a step-up basis.

2)   Carried interest, Capital gains and Tax Rates: The current maximum tax rate will drop from 20% to 16.5%, and will be subject to a 50% exclusion.

3)   Business Interest Deductibility, Like-Kind Exchanges, and depreciation:  Business investments will be fully expensed vs the current depreciation over 27.5 years, and losses can be increased and carried on indefinitely to account for return on capital and inflation. This would exclude land purchases but will include construction and/or purchase of a multifamily building.

4)   Tax Rate on a Pass-Through Business Income: Reform calls for a decrease in the maximum tax rate for pass-through business (S corps, partnerships, LLC’s, etc) to 25%, down 14.6% from 39.6%. Additionally individual income tax will max out at 33% with 12% and 24% intermediate rates.

2017 is shaping up to be an interesting year. Grab your surfboards and let’s ride the tide together!

By: Aaron Cohen

Feeling [in]SPIRED!

Contents for this article were derived from the following two sites and articles. [in]SPIRE is impartial to the opinions and ideas illustrated.

Berger, Matthew. "What Would Tax Reform Mean for Multifamily?" What Would Tax Reform Mean for Multifamily? National Multi Housing Council, 01 Dec. 2016. Web. 02 Jan. 2017. <http://www.nmhc.org/News/What-Would-Tax-Reform-Mean-for-Multifamily/>.

 "A Better Way Forward on Tax Reform." Ways and Means. N.p., n.d. Web. 02 Jan. 2017. <https://waysandmeans.house.gov/taxreform/>.