Late last year, President Donald Trump signed the Tax Cuts and Jobs Act of 2017. As NAIOP President and CEO Thomas Bisacquino said at the time: “A landlord can only do as well as his or her tenants. Our expectation is that this tax reform legislation results in long-term economic growth and job creation for our nation.”
A few months later, most in the commercial real estate industry continue to view this far-reaching reform of our tax code, which preserved many aspects of existing law that are important to our industry, as a positive step that will boost economic growth. NAIOP’s chapters are providing venues to educate our members on the legislation. For example, just last month NAIOP Philadelphia hosted an event to discuss the outcome of tax reform. Speakers included:
- Alex Ford, Director of Federal Affairs, NAIOP
- Lauren Gilchrist, Vice President, Director of Research-Philadelphia, JLL
- Bruce Johnson, Partner, Capstan Tax Strategies
- Brian O’Sullivan, CPA, CVA | Partner, LG Legacy Group
The panel discussed NAIOP’s role in helping shape the tax bill. Enacting pro-growth tax reform has been a priority for NAIOP for many years, and the final bill contained many important elements for CRE. Panelists also explained the new features and benefits tax reform delivers for the real estate industry, and the impact it will have on tenant demand, property values and the market as a whole.
But what has also become apparent is that, as with any legislation of this magnitude, mistakes occur in the drafting of the legislative language. This bill is no different. In the rush to put the law together and meet the deadlines imposed by the legislative process – in this case the budget reconciliation process needed to get the bill through the U.S. Senate – mistakes and areas needing further clarification were the inevitable result. For example, lawmakers will need to go back and clarify the law’s treatment of Qualified Improvement Property.
As the accounting firm KBKG explains, lawmakers intended “to provide a 15-year life and bonus depreciation for qualified improvement property (QIP) placed in service after 2017” and a 20-year life under the Alternative Depreciation System. But when the law passed, it didn’t include language to properly amend the existing tax regulations. NAIOP has called on Congress to pass a technical corrections bill which remedies this situation and restores the intent of this noncontroversial provision.
In fact, within a month of the law’s passage, House Speaker Paul Ryan was on C-Span and discussed some of the corrections that would be needed. He expects only minor changes.
For their part, states are also reacting to the new tax law. Politico reports that the state of New York “will set up two funds allowing taxpayers to donate money in support of education and health care and will allow school districts and municipalities to run similar donation-and-credit systems.” That’s an attempt to skirt the new law’s limits on state and local tax deductions (SALT). Taxpayers could pay into the funds and deduct that amount from their federal returns.
Other high-tax states (such as California and New Jersey) may follow the Empire State’s lead. However, it isn’t yet known whether New York’s tactic is legal. That will be determined by the courts.
Back in Washington, lawmakers have struggled to reach agreements on important topics this year. For example, they recently enacted a 2018 budget, about six months after the start of the fiscal year. That bill includes massive spending increases across the board – among them an increase in the Low Income Housing Tax Credit – and Trump made clear he didn’t care for it even as he signed it.
So while this type of technical corrections bill should be (and usually is) fairly non-partisan, the sharply divided state of national politics and the upcoming mid-term elections make it almost impossible to pass any bill, even a corrections bill, before the November elections.
NAIOP representatives have been meeting with lawmakers and staffers on the House Ways and Means committee to explain the importance of a technical corrections bill. This remains important because, even if Congress cannot agree on changes before November, the foundation for action by the lame duck Congress immediately after the election would have been established. This will be critical on some issues such as QIP, where action prior to year’s end could determine what level of taxes are due in 2019.