The annual debate and process to extend a number of temporary tax provisions of interest to the apartment housing industry continues. But no resolution is likely until later this fall. Specifically, the House Ways and Means Committee approved legislation on Sept. 17 to make permanent one of these so-called tax extenders – bonus depreciation. It allows apartment firms to expense 50 percent of the cost of a qualifying investment in the year it was purchased.
The end game for enacting tax extenders remains murky. On the House side, Ways and Means Committee Chairman Paul Ryan (R-Wis.) has indicated a desire to make permanent a number of tax extenders. Under such a scenario, however, some others may be extended on a shorter-term basis or simply expire.
While the House wants to make certain extenders permanent, the Senate Finance Committee is focused on a two-year package that takes care of extenders for 2015 and 2016. Last December Congress retroactively extended them through 2014. So they must be addressed again this year to allow firms to claim them in 2015.
The following tax extenders would impact the apartment housing industry most:
- Bonus Depreciation: Bonus depreciation has enabled taxpayers to expense (as opposed to depreciate over a number of years) 50 percent of the cost of a qualifying investment (i.e. property with class lives or 20 years or less) in the year it was purchased.
- Small Business Expensing: Under current law, small businesses can expense, as opposed to depreciate over a period of years, up to $25,000 in new investments. This amount is reduced as aggregate investments exceed $200,000. For property placed into service between 2010 and 2014, small businesses could expense up to $500,000 in qualifying investment subject to a phase out beginning at $2 million in investment. The House in February voted to make these thresholds permanent while the Senate Finance Committee’s tax extenders bill would renew and index for inflation these amounts through 2016.
- Minimum 9 percent and 4 percent Low-Income Housing Tax Credit (LIHTC): Due to low interest rates, the current 9 percent LIHTC is actually set at a 7.51 percent rate, reducing its value by over 16 percent. Accordingly, last year’s tax extenders package extended the minimum 9 percent rate for newly constructed, non-federally subsidized buildings for which a LIHTC allocation was made prior to January 1, 2015.
In a victory for the industry, the Senate Finance Committee’s extenders package renews the minimum 9 percent LIHTC for allocations made prior to 2017. It also establishes a minimum 4 percent LIHTC for the acquisition of existing properties that are not federally subsidized for buildings placed in service after the date of enactment with respect to which credit allocations are made before 2017.
- Deduction for Energy Efficient Commercial Buildings: Through 2014, the tax code provided for a $1.80 per square foot tax deduction for properties that exceed the efficiency standards set out in the 2001 American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) Standard 90.1 by 50 percent. The Senate Finance Committee’s tax extenders package renews the provision through 2016 and resets the ASHRAE standard to 2007 requirements. Additionally, tax-exempt non-profits could allocate the deduction to the entity primarily responsible for designing the property.
- New Energy Efficient Home Credit: This tax credit allows some low-rise apartment communities (three stories or less) to qualify for a $2,000 per-unit tax credit for new residences that achieve a 50 percent energy savings for heating and cooling over the 2006 International Energy Conservation Code and supplements. The Senate Finance Committee’s tax extenders package would renew the provision for 2015 and 2016.
- New Markets Tax Credit (NMTC): The NMTC provides a tax incentive for qualified equity investments in economically distressed areas that can be used for mixed-use projects. The law permitted $3.5 billion in new investments for 2014. The Senate Finance Committee’s tax extenders package renews the NMTC through 2016, but also increases annual allocations to $3.94 billion.
Provided by NMHC as part of the NAA/NMHC Joint Legislative Program