The Tax Cuts and Jobs Act of 2017 (Jobs Act) is the first comprehensive tax reform legislation passed in over 30 years. Unlike the last tax reform bill of 1986 which wrecked the commercial real estate industry for a decade, the Jobs Act left the industry unharmed and actually delivered several victories. That said, our advocacy work goes on. Given the size and scope of the law, the bill’s language will have to be clarified in several areas to function as intended. Of particular interest to apartment firms are provisions related to depreciation and the taxation of pass-through entities.
Congress either enact a technical correction or encourage the Treasury Department to issue guidance that would enable real estate firms that elect out of the interest limitation to depreciate multifamily property in existence prior to 2018 over a 30-year ADS schedule. We request that the Treasury Department issue guidance enabling individuals to aggregate or group all qualified business activities at the partner level in a manner consistent with IRC Section 469. The Treasury Department should provide rules regarding the unadjusted basis of property acquired pursuant to a like kind exchange. Such basis should be no less than the unadjusted basis of the property relinquished in the exchange plus any cash or other consideration provided in the exchange.
As an Owner or Operator, How Does this Affect My Business?
The Jobs Act allows firms to elect to continue to deduct business interest, but requires them to extend a building’s depreciation period from 27.5 years to 30 years. Although we believe Congress intended that that provision would apply to both existing and new buildings, the language is ambiguous and could be read to require the remaining life of existing buildings be depreciated over 40 years when owners opt to deduct the business interest. We are asking Congress to affirm that the 30-year depreciation period applies to the existing buildings.
We are also working to ensure that the bill is correctly interpreted to allow multifamily businesses to fully qualify and receive the benefit of the 20 percent deduction allowed for qualifying income earned by the pass-through entities (e.g., LLCs, partnerships and S Corporations).