CCIM InstituteBoard of Directors Meeting

May 1, 2014

Tax Reform and Its Effect on Commercial Real Estate

Presented by Evan M. Liddiard, CPASenior Policy Representative – Federal Taxation

National Association of REALTORS®

Fundamental Tax Reform

Comprehensive Tax Reform

Incremental Tax Reform

Comparison of Tax Reform Types

Fundamental• Exciting but scary• Hard to predict outcome• Not politically viable in

near term

Examples:• VAT (total replacement)• National retail sales tax• Flat tax

Incremental• Safe but slow• Not sexy• Hard to focus public

attention

Example:• Student & Family Tax

Simplification Act (HR 3393)

Comprehensive Tax Reform• Big enough to capture imagination of taxpayers• Not so bold as to be too risky or unpredictable• If not revenue neutral, risk of looking like tax hike

or tax cut in disguise• If not distributionally neutral, very hard to get

bipartisan support

Examples:• Camp tax reform draft plan• Baucus tax reform discussion draft

Other Tax Reform Issues

• Corporate only reform?• Could make losers of pass-thru entities

• Business reform?• May not be politically feasible

• Corporate and individual reform at same time?• Most likely scenario• Huge undertaking• Will businesses subsidize individuals, as in 1986?

Tax Reform – Potentially Dangerous to Commercial Real Estate

• If revenue neutral, tax rate cuts will have to be “paid for” by cutting back or repealing vital deductions, exemptions, and credits

• If distributionally-neutral, higher income individuals may face higher tax rates to keep overall system’s progressivity

What’s at Stake for Commercial Real Estate?

Congress’s Tax Committees

Depreciation

Like-kind Exchanges

Capital Gains Tax Rate on Depreciation Recapture

Carried Interest

Other Tax Changes on the Horizon

Expired Tax Provisions

Leasehold Improvements

Deduction for Energy Efficient Commercial Buildings

FIRPTA Reform?(Real Estate Investment & Jobs Act)

Next Year and Beyond

New LeadershipWays & Means Committee

New LeadershipFinance Committee

Who Will Control the Senate in 2015?

What Will President Do With a GOP-Controlled Congress?