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February 28, 2014
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Sweeping Tax Reform Plan Raises Key Concerns for Multifamily

Copyright: Wanda Anthony

House Ways and Means Committee Chairman Dave Camp (R-MI) unveiled a sweeping tax reform proposal this week to little or no fanfare on Capitol Hill.  Camp emphasized that taxpayers would receive lower tax rates along with a simpler, fairer code that would boost the economy. But Republicans and Democrats alike are saying that the proposal targets several popular tax breaks in a critical election year, and Speaker of the House John Boehner (R-OH) is setting low expectations for any quick action on the plan.

Both the individual and corporate aspects of the proposal are being carefully analyzed by lawmakers and pundits in the press.  For the multifamily industry, an area that could be of significant concern is that the proposal would extend to 40 years, from 27.5 years, the depreciation period for apartment buildings placed in service beginning in 2017.  In a further blow to real estate, depreciation recapture would be taxed at ordinary income rates of up to 35 percent, as opposed to today’s 25 percent rate, for sales after 2014.

The multifamily industry can, however, also claim significant victories. Most notably, that the proposal retains capital gains tax treatment for a carried interest applicable to multifamily real estate. The proposal also maintains the full deductibility of business, interest and state and local taxes, resulting from business activities. In addition, the Low-Income Housing Tax Credit is preserved, even though it had been under fire, but with a longer recovery period and without the current four percent credit. And finally, the current-law estate tax, which allows for a $5.34 million ($10.68 million per couple) exclusion, 40 percent top tax rate, and stepped-up basis for inherited assets, is left unchanged in the proposal.

Although the House and Senate are not expected to advance comprehensive legislation this year, Camp’s tax reform proposal is likely to be the subject of Ways and Means Committee hearings. The bill will also certainly be a starting point for any future tax reform discussions beyond this year and NMHC/NAA will continue to remain actively engaged.

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Defense Budget Proposal Shrinks Core Military Housing Program

As Washington continues to face budget challenges, Defense Department (DoD) Secretary Chuck Hagel announced a fiscal year 2015 budget proposal this week that raises significant concerns for our military and their families.  Specifically, the DoD has proposed a five percent reduction to the Basic Allowance for Housing (BAH), a core military benefit that compensates service members for their housing costs. 

The proposed cutbacks to the BAH would increase out-of-pocket housing expenses for one million troops, which would impact apartment communities that serve the military. In addition, the BAH provides critical funding stability for the Military Housing Privatization Initiative, which has successfully transitioned a large portion of severely-deficient government-run housing into high-quality privately-owned and operated properties. So any BAH reduction would also reduce the income stream for these projects and jeopardize the continued success of the program.

However, the DoD proposal faces significant obstacles. NMHC/NAA, service member and veterans associations, and other industry advocates have raised concerns for months leading up to the release of the proposed budget about cuts to military pay and benefits.  Most recently, we spoke out against BAH cuts for an Appropriations Subcommittee hearing on the “Quality of Life in the Military.” 

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NMHC Insider
Senate Holds Hearing on Terrorism Insurance as Expiration Looms

With the expiration of the Terrorism Risk Insurance Program looming at the end of the year, the Senate Banking Committee held a hearing on Feb. 25 on reauthorizing the program.  Most lenders and Fannie Mae and Freddie Mac require terrorism coverage, so if the program is allowed to expire, borrowers will be in technical default of their loan and will most certainly face other economic uncertainties.

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New Fed Chair Yellen Addresses Issues Impacting Multifamily
The new Federal Reserve Chairman Janet Yellen recently made her first appearances before the House and Senate, where she addressed many issues that impact the multifamily industry, including near-term interest rates, managing the reduction in quantitative easing, and her outlook for the economy.
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Hill Watch
House Hearing on Reauthorization of the Satellite Television Extension and Localism Act, Wed., March 5, 2014
House Hearing on Data Security: Examining Efforts to Protect Americans' Financial Information, Wed., March 5, 2014
Media Roundup
NMHC's Eileen Lee: Rising to the Better Buildings Challenge
National Real Estate Investor
The Obama Budget Will Be More Dead on Arrival Than Most
Flood Insurance Goes Back to Rewrite
Roll Call
Flood Insurance Vote Delayed by House Republicans
Wall Street Journal
Hensarling Stranded in Opposition to Flood Insurance Bill
Republican Tally on Immigration Principles an Evolving Project
Roll Call
House Votes to Gut Supreme Court Ruling on Eminent Domain
The Hill
Waters Wants Mortgage Industry to Fund Fannie, Freddie Guarantees
Let's End the Fannie and Freddie Monopoly
Real Clear Politics
The Scoop

House Speaker Boehner Gets an Unexpected Compliment: “Nice Tan, Sir.”
Speaker of the House John Boehner (R-OH) dished out some DC-style sarcasm to reporters at a questions and answers session for lawmakers this week, but Boehner showed he could also take it when one of the reporters complimented his tan. Watch the Video

Please note:  This week, National Real Estate Investor (NREI) sent out a survey on multifamily market trends that included questions about NMHC, and information on industry influencers, without our involvement or approval.  NMHC has requested that NREI remove our name from the survey and any future related outreach.

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