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'93 may be year for legislative strides.

In order for the real estate industry to gain a stronger economic footing. it is essential that federal legislation be passed to create a fairer business environment.

The real estate community, led by the National Realty Committee ("NRC"), made substantive progress on many important federal tax issues during the past year. 1993 holds even greater promise that we will make tremendous strides on legislation and policy decisions crucial to the progress of our industry.

1992 ended on a bit of a sour note as President Bush vetoed the omnibus tax bill (H.R. 11) that contained a number of crucial real estate tax policy initiatives.

The good news is, however, that through the NRC these real estate initiatives appear to enjoy an increased level of bipartisan support. Specifically, these initiatives include:

* Full, equal treatment under the passive loss rules to many real estate owners. This provision would allow owners to calculate their gains and losses like all other business professionals

* A provision to facilitate debt restructurings and workouts by allowing taxpayers in this situation to reduce the depreciable basis in real property they own by the amount of debt forgiven, thus deferring current tax liability until the property is sold.

* Steps to modify and modernize the tax rules affecting debt-financed real estate investment by pensions

* A permanent extension of the low-income housing and mortgage-revenue bond programs to facilitate the construction of affordable housing

Although it was unfortunate that these measures were connected to a vetoed bill, the very fact that these real estate provisions were adopted by Congress demonstrates that our industry has made and continues to make significant gains in Washington.

Federal policymakers have an increasing awareness that there is a strong connection between the health of the real estate community and the health of the general economy.

Collectively, these tax initiatives would help put real estate and the national economy on a sound economic footing, helping to stabilize real estate values and alleviating the credit crisis that continues to linger on.

With these real estate issues currently front and center, their future with the new 103rd Congress bodes well for the industry at a time when the economy remains at the top of Washington's policy agenda.

The real estate community must maintain its focus on these provisions to make sure that they move forward this year. In addition, there are many other issues that the real estate industry is facing and other legislative revisions that should be advanced.

Attention must be paid to making real estate more accessible via public capital markets and to the tax treatment of leasehold improvements. Current law requires taxpayers to depreciate leasehold improvements to real estate over the same period as the entire building, even though in practice these improvements have little or no value beyond the expected term of the lease.

As a result, the after-tax cost of building-out space to accommodate new tenants is artificially high. We must rationalize these tax rules so that tenant improvements can be recovered over the lease-term, which is really their true useful life.

Additional legislation such as investment tax credits and some form of capital gains cut would also provide needed incentives.

President Clinton has vowed to place economic growth at the top of his legislative and policy agenda. Although his administration is too new to be thoroughly tested, he has spoken out about ensuring capital and credit availability and fair treatment for real estate under the passive loss rules.

With a new president and a new Congress, we must work harder than ever to push our legislative agenda. For the national economy to recover and grow, real estate markets must first be stabilized and strengthened.

Reducing today's downward pressure on real estate, especially real estate values, is essential to shore up financial institution portfolios, state and local tax bases and a real estate economy that employs more than 8 million people.
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Title Annotation:Review & Forecast, Section IV; federal legislation must be passed to enhance economic strength of real estate industry in 1993
Author:Rudin, William C.
Publication:Real Estate Weekly
Date:Jan 27, 1993
Previous Article:As tenants tighten belts, RE must give more.
Next Article:Opening the window of opportunity.

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