WASHINGTON, DC-A proposal that could change the way partnerships are taxed is just one measure out of many that will be put forth by the House Ways and Means Committee this year. Congress, in short, is serious about comprehensive tax reform and the Ways and Means Committee has convened a number of working groups to work on various aspects of it.
The Real Estate Roundtable is following the proceedings closely and will be working with Congress to make sure the commercial real estate industry's interests are represented, Roundtable CEO Jeff DeBoer tells GlobeSt.com.
Deboer can't say whether the House proposal on pass-through entities would be good, neutral or disastrous for the industry. "I have to see the other proposals when they come out to understand how it all fits together," he says. "There could easily be unintended consequences that the tax writers did not foresee."
For instance, in a letter to House Ways & Means Chairman Dave Camp (R-MI) and Ranking Member Sander Levin (D-MI), DeBoer pointed to the destabilizing effect of the 1986 Tax Reform Act on commercial real estate values when significant policy changes were applied to pre-existing real estate investments. "It took years for the overall industry to regain its productive footing, and certain aspects of the economy never recovered," DeBoer wrote.
The House proposal could lead to higher taxes for real estate, as well as new costs associated with the new structures. Its goal is to make equal the tax responsibilities between companies structured as S Corporations and companies structured as partnerships. Partnerships are typically more flexible, and the proposal would bring those rules more in line with the more rigid allocations for S Corporations.
"What we can say is, based on what they have put out so far, that these are potentially very big changes to partnership taxation and to how CRE partnerships are able to attract investors and develop and transfer property, but we don't know exactly how positive or negative they are until we see the whole picture," DeBoer said.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
