After TRIA Reauthorization,
What’s Next for Legislators?
Tax reform looms over the industry
BY KAREN W. PENAFIEL
When the 114th session of Congress convened on Jan. 5, the first legislation that passed the House and the
Senate and was signed into law by President Obama was
HR 26, which extends for six years the federal Terrorism Risk
Insurance Act (TRIA).
The federal government’s insurance program was put into place
soon after 9/11, when many building owners were advised that
their policies would not be renewed or that new policies would
exclude terror and war
risks. Thirteen years into
the government program,
which was initially in-
tended to be a short-term
backstop, it still appears
that the insurance and re-
insurance industry cannot
accurately underwrite and
assume the risk.
BOMA believes that this
program is critical to en-
sure business continuity,
protect taxpayers and policy holders, and provide a mechanism
for the orderly payout of claims in the event of a terrorist attack.
You don’t have to be a political insider to know that, for the
past two years, Congress was at its dysfunctional best regarding
TRIA. The inability to reauthorize in a timely manner –
before insurers began to send notices to policy holders that
their terrorism coverage would not be renewed and before the
program’s expiration at the end of 2014 – is just one example.
Despite a majority of lawmakers in both parties and both
chambers supporting TRIA reauthorization, Congressional
leadership continued to play a game of chicken. Only after the
end of the lame duck session, after the expiration of TRIA, and
after negative press amid rumors that the Super Bowl could
be cancelled without terrorism coverage, did Congress show it
could pass bipartisan legislation.
What’s next? Can the commercial real estate industry gain
additional victories with other high-priority issues that have
been stymied? Will the increased Republican majority in the
House and the newly gained control of the Senate speed action
or merely bait President Obama to veto?
Many important issues are on the agenda and lawmakers
need to move quickly to ensure action prior to the commotion
of the 2016 presidential election.
Top Real Estate Issues in Play
Tax reform tops the list of agenda priorities. Talks on this
matter began in earnest during the last session of Congress. The
Senate put forward proposals to revise the tax code in late 2013,
and the House released its own framework early in 2014. While
both parties agreed that the current tax code must be made
simpler, many believed the tax agenda of Senate Democrats was
to raise revenues for the Treasury, while the agenda of House
Republicans was to lower overall corporate tax rates.
Both proposals hit the commercial real estate industry hard.
The Senate proposal released by then-Chairman of the Senate
Finance Committee Max Baucus (D-MT) increased the depreciation schedule for buildings and building improvements, including
leasehold improvements, from 39 years to 43. The plan also
would tax so-called “recapture” of depreciation – where the IRS
requires payback of a portion of an investor’s earlier write-offs –
at property owners’ ordinary income tax rates rather than at
lower capital gains rates. The Baucus proposal also failed to
extend tax incentives for energy-efficiency improvements to
commercial buildings (under Section 179D) and repealed Section
1031, commonly known as “like-kind” exchanges, a part of the tax
code since its inception.
The plan that soon followed by House Ways and Means
Chairman Dave Camp (R-MI) included many similar changes.
Among those were increasing the depreciation schedule for
buildings and leasehold improvements to 40 years. The proposal
also failed to reinstate Section 179D and eliminated like-kind
exchanges. Other changes included increasing the capital gains
rate to 24.8% (21% plus the current 3.8% tax on net investment
income) and recharacterizing carried interest as ordinary income,
although the chairman’s description indicated that this change
would not apply to a partnership engaged in a real property
trade or business.
The conversations on both sides of the Hill are ongoing, and at
this point, it is still unclear if there will be a new starting point or
if the debate will pick up again on last session’s discussion drafts.
BOMA and our coalition partners remain actively engaged in
shaping the debate.
Karen Penafiel is vice president of advocacy,
codes, and standards for BOMA International.
She can be reached at email@example.com.
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