Advocacy: Tax Reform in 2017
A new Administration and Congress are getting up to speed in Washington, D.C. Although NAR cannot predict what changes might occur within the Real Estate Sector of the economy, we do have some insights from our friends in Congress that lead us to an anticipated path for 2017.
The Previous Congress adjourns without passing Tax-Extenders
After passing a Continuing Resolution that will fund Federal Government operations until April 28, 2017, the 114th Congress adjourned on Friday, December 9, 2016. A long awaited extension of the “Tax Extenders” package was not passed in the lame-duck session; it is expected that any Tax Extenders Package would be included in a comprehensive tax reform package.
What About Tax Reform?
Here is what NAR has learned so far. The Trump Administration and the Republican Congressional leadership intend to use a legislative vehicle called Budget Reconciliation to move Tax Reform. Current plans are to use Budget Reconciliation twice. The first to repeal the Affordable Care Act and the second to pass Tax Reform. NAR is already engaged with key members of the tax writing committees in the House and Senate, on both sides of the aisle, to outline our positions on Tax Reform. NAR will protect all commercial and residential real estate tax provisions. Here are two documents that outline NAR policy and talking points for you to use with your colleagues and clients.
GOP Priorities for the 115th Congress
The GOP leadership has identified several priorities for 2017. These are not listed in any particular order, but rather are intended to provide a snapshot of what issues are going to be looked at early in the new Congress. In order to use Budget Reconciliation both the House and Senate must pass the same Budget. It is the leadership’s intention to pass both an FY17 Budget and an FY18 Budget so that they can use Budget Reconciliation for Tax Reform and the Repeal of the Affordable Care Act. Regulatory reform is expected to be high on the list of Congressional action. This is a reaction to the large number of executive orders issued in the Obama Administration. Congress will flex its muscles as a coequal branch of government. Job Creation it is expected that the GOP will claim most recent job creation was the result of regulatory compliance and did not represent an added demand for workers. Immigration GOP will push for border security measures including the Southern Border Wall. Additionally, the US Senate will have more than 1200 nominations to process, potentially slowing down legislative activity.
How many of these ideas will become the law of the land? I will leave that to Michael Jordan: “I can’t speak for the future. I have no crystal ball.”
Take a Deeper Dive
What is the fundamental issue?
Since 1921, U.S. tax law has recognized that the exchange of one investment or business-use property for another of like-kind results in no change in the economic position of the taxpayer, and therefore, should not result in the immediate imposition of income tax. The like-kind exchange rules permit the deferral of taxes, so long as the taxpayer satisfies numerous requirements and consummates both a sale and purchase of replacement property within 180 days. Real estate investors and commercial real estate practitioners place a very high priority on retaining the current like-kind exchange rules.
I am a real estate professional. What does this mean for my business?
The exchange rules often provide a real estate professional with an opportunity to facilitate two transactions: the sale of the relinquished property and the purchase of the replacement property. Any curtailment of the exchange rules will make both pieces of exchange transactions more difficult to conclude and would mean that many transactions would not take place. The like-kind exchange technique is among the most important of all tax provisions for real estate investors and commercial real estate professionals
NAR opposes any change that would undermine the deferral mechanisms associated with exchanges or lead to fewer transactions.
The like-kind exchange technique is fundamental to the real estate investment sector. The current law provides investors with a great deal of flexibility in managing their real estate portfolio. Real estate is essentially an illiquid asset that requires substantial commitments of cash. Flexibility is needed in order to assure the free movement of property and capital. This, in turn, results in economic growth and job creation.
To summarize, NAR:
- understands the like-kind exchange technique is among the most important of all tax provisions for real estate investors and commercial real estate professionals.
- opposes any change that would undermine the deferral mechanisms associated with exchanges or lead to fewer transactions.
- believes the like-kind exchange technique is fundamental to the real estate investment sector.
- is working with other interested stakeholders to oppose the repeal or limitation of the like-kind exchange provision.
- is educating Members of Congress and their staffs on the importance of this provision to the economy.