CCIM Institute Board of Directors Meeting May 1, 2014 Tax Reform and Its Effect on Commercial Real Estate Presented by Evan M. Liddiard, CPA Senior Policy Representative – Federal Taxation National Association of REALTORS®
Fundamental Tax Reform
Comprehensive Tax Reform
Incremental Tax Reform
Comparison of Tax Reform Types Fundamental Exciting but scary Hard to predict outcome Not politically viable in near term Examples: VAT (total replacement) National retail sales tax Flat tax Incremental Safe but slow Not sexy Hard to focus public attention Example: Student & Family Tax Simplification Act (HR 3393 )
Comprehensive Tax Reform Big enough to capture imagination of taxpayers Not so bold as to be too risky or unpredictable If not revenue neutral, risk of looking like tax hike or tax cut in disguise If not distributionally neutral, very hard to get bipartisan support Examples: Camp tax reform draft plan Baucus tax reform discussion draft
Other Tax Reform Issues Corporate only reform? Could make losers of pass-thru entities Business reform? May not be politically feasible Corporate and individual reform at same time? Most likely scenario Huge undertaking Will businesses subsidize individuals, as in 1986?
Tax Reform – Potentially Dangerous to Commercial Real Estate If revenue neutral, tax rate cuts will have to be “paid for” by cutting back or repealing vital deductions, exemptions, and credits If distributionally-neutral, higher income individuals may face higher tax rates to keep overall system’s progressivity
What’s at Stake for Commercial Real Estate?
Congress’s Tax Committees
Depreciation
Like-kind Exchanges
Capital Gains Tax Rate on Depreciation Recapture
Carried Interest
Other Tax Changes on the Horizon
Expired Tax Provisions
Leasehold Improvements
Deduction for Energy Efficient Commercial Buildings
FIRPTA Reform? (Real Estate Investment & Jobs Act)
Next Year and Beyond
New Leadership Ways & Means Committee
New Leadership Finance Committee
Who Will Control the Senate in 2015?
What Will President Do With a GOP-Controlled Congress?