BOMA International’s lobbying efforts have resulted in a series of historic advocacy victories for the commercial real estate industry with the passage of the Protecting Americans from Tax Hikes (PATH) Act of 2015 by the U.S. Congress. Included in the PATH Act are a permanent extension of the 15-year depreciation on qualified leasehold improvements, BOMA’s top tax priority; fixes to the Foreign Investment in Real Property Tax Act (FIRPTA); and a straight two-year extension of the energy efficiency deduction for commercial buildings.
Commercial building owners now have the economic certainty necessary to invest capital confidently knowing they will be able to depreciate tenant improvements over 15 years instead of 39, a timeline that more closely aligns with the life of an average lease. This will result in more tenant improvement projects, which will lead to more construction jobs and boost the U.S. economy. Over the past decade, the provision to reduce the depreciation timeline from 39 to 15 years had been extended, but often retroactively or at the last minute, not allowing building owners, managers or tenants to take full advantage of the law. Permanent 15-year depreciation is a big win for the health of both the commercial real estate industry and the economy.
The adjustments made to FIRPTA in the PATH Act will encourage more foreign entities to invest in America’s real estate, which will go a long way toward restoring economic vitality to the industry. The new law increases the withholding threshold for foreign investors to hold an interest in U.S. real estate without triggering unnecessary tax liability from five to 10 percent, and it exempts foreign pension funds from the tax penalty. These fixes come at a time when the country’s infrastructure needs are greater than ever, and they will help generate much-needed investment in real estate and infrastructure projects across the United States.
The two-year extension of the deduction for energy efficiency improvements for commercial real estate, also known as the 179D deduction, is a victory for building owners who are making investments in their properties to increase energy efficiency. BOMA International would like to see this deduction improved and enhanced to truly spur innovation in the commercial real estate’s market transformation towards greater efficiency in future legislation, but a two-year extension is a positive step in the right direction to incentivize building owners to invest in the efficiency of their buildings.
For more information on BOMA International’s federal advocacy efforts, visit the Industry Issues section of www.boma.org.
Congress Still Working on Tax Extenders
Recently, the U.S. Congress released a broad tax extenders plan that would make 15-year depreciation on qualified leasehold improvements permanent. The complete package—estimated to cost roughly $650 billion over the next decade—also would include a two-year extension of the energy efficiency tax deduction for commercial buildings (also known as section 179D of the tax code), as well as some fixes to the Foreign Investment in Real Property Tax Act (FIRPTA). Successful passage of the plan would be a huge victory for both the commercial real estate industry and BOMA. Making the 15-year timeline for depreciating leasehold improvements permanent has long been BOMA International’s number one tax priority.
While this heavily negotiated package is expected to pass soon, if the deal falls through, the likeliest outcome will be a straight two-year extension of the 52 tax provisions known as “extenders,” which is a now yearly ritual of tax provisions being extended in the days before the congressional holiday recess. Late last year, Congress passed a one-year extenders bill, retroactive for tax year 2014. On January 1, 2015, the depreciation period reverted to 39 years. Congress also is expected to pass an omnibus spending bill funding the government for the next two years and then recess until after the holidays.