ADISA Co-Signs Real Estate Statements to U.S. House and Senate

Jun 02, 2017

As the House Committee on Ways and Means meets to consider how tax reform can create jobs, increase paychecks and grow the economy, and the Senate Committee on Finance meets to consider budget and tax priorities, ADISA, along with 21 other national real estate organizations, submitted statements to both committees expressing views on tax reform and commercial real estate.
The comments in both statements, summarized below, very broadly represent the views and perspective of the real estate industry.

  • Commercial real estate encompasses a broad range of property types and activities, and is critically important to the U.S. economy. Real estate is a leading job creator and provides a stable investment for retirees and tax-exempt investors. By contributing a large share of local tax revenue, real estate supports schools, roads, law enforcement, and other public services that enhance communities.
  • Commercial real estate markets are grounded in strong fundamentals. Broad-based economic growth through tax reform would be good for real estate, but it should be based on sound reforms and not artificial, unsustainable stimulus.
  • Tax reform is needed and could increase entrepreneurship, capital formation, and job creation. However, some reforms could be unintentionally counterproductive, lowering real estate values and causing economic dislocation.
  • Rational taxation of real estate will support job creation and responsible real estate investment and development. Four principles—tax reform should: (1) encourage capital formation and appropriate risk-taking while providing stable, permanent rules; (2) ensure rules closely reflect underlying economics, avoiding excessive incentives or disincentives; (3) recognize that tax incentives are needed in limited situations to address market failures and encourage capital to flow to socially desirable projects; and (4) provide a well-designed transition regime.
  • The real estate industry supports the Blueprint’s objective to promote economic growth and jobs. Concerns with the Blueprint’s cash flow tax system include its treatment of land (not eligible for expensing) and the treatment of net interest expense (nondeductible). We are also concerned that the Blueprint could repeal like-kind exchanges, which generate broad economic and environmental benefits. Additionally, the Blueprint’s proposal to repeal the state and local tax deduction could disrupt demand for commercial real estate in many parts of the country. Depending on the transition rules, the Blueprint could result in substantially lower returns and property values for existing properties, while creating different results for different taxpayers in the case of new investment. The industry is concerned about the potential for economic and market risk associated with investment that is tax-driven, rather than grounded in economic fundamentals.
  • Going forward, the Committees should consider excluding real estate from the basic Blueprint architecture and preserving like-kind exchanges. If real estate is included in the cash flow tax system, the bill should include carefully designed transition rules.
  • Other policy decisions associated with the Blueprint will have enormous consequences for real estate, including: the 50% capital gains exclusion, depreciation recapture, the reduced tax rate on pass-throughs, loss carryforwards, and capital gains treatment for entrepreneurial risk taking. The Committees should repeal FIRPTA as part of tax reform.

The other organizations that co-signed the statements include:
ADISA—Alternative & Direct Investment Securities Association
American Hotel & Lodging Association
American Institute of Architects
American Land Title Association
American Resort Development Association
American Seniors Housing Association
Appraisal Institute
Asian American Hotel Owners Association
Associated General Contractors of America
The Building Owners and Managers Association (BOMA) International
CCIM Institute
Federation of Exchange Accommodators
Institute of Real Estate Management
International Council of Shopping Centers
IPA—Investment Program Association
Mortgage Bankers Association
NAIOP, the Commercial Real Estate Development Association
National Apartment Association
National Association of REALTORS®
National Multifamily Housing Council
The Real Estate Roundtable
REALTORS® Land Institute
You can read the statement to the House Committee on Ways and Means here.
You can read the statement to the Senate Committee on Finance here.