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Both the House and Senate passed a $792 billion tax cut bill (The Financial Freedom Act, H.R. 2488) in August before leaving town for the summer recess. The bill reduces each individual tax bracket by one percent, reduces the marriage penalty, phases out estate taxes, and significantly reduces the effect of the Alternative Minimum Tax. Although President Clinton is expected to veto this legislation, many of its provisions will likely show up in compromise tax legislation that many expect will be worked out by the President and Congress later this year. Thanks to National Apartment Association/National Multihousing Council (NAA/NMHC) efforts, the bill includes several provisions of interest to the apartment industry:

* Individual Capital Gains. The maximum capital gains tax rate that applies to individuals would be reduced from 20 percent to 18 percent. The recapture rate on real estate depreciation would be reduced from 25 percent to 23 percent. The new rates would be effective for sales after January 1, 1999.

* Two recently-released studies support arguments by NAA/NMHC/ASHA that current tax law is biased against real estate and negatively impacts the capital markets. The first study, Depreciation and the Taxation of Real Estate by the Congressional Research Service, concludes that "depreciation of residential structures is more restrictive than it has been since 1971 ." According to the report, the depreciation period for real estate would need to be reduced to 20 years (from the current 27.5 years) to equalize the effective tax rates of real estate and equipment.

* A second report by economic consultant Arthur Lieberman, Tax Policy Arguments for Full Capital Gains Tax Relief for Real Estate: 1999 Update, reports that because depreciation recapture is taxed at a higher rate than ordinary capital gains rate, the inflationary gains of real estate are unfairly taxed at a higher rate than is applied to other capital assets. As a result, it says, the depreciation recapture rules have distorted the capital markets and have led to further "lock-in" of older real estate that is in need of new capital for repair and modernization.

* Real Estate Investment Trusts (REIT). Several REIT provisions are included, most notably one that would allow REITs to set up taxable REIT subsidiaries to provide a limited amount of noncustomary services to a REIT's residents and others.

* At-Risk Rules. The proposed bill would modify the "at-risk" rules for real estate to provide that a taxpayer is considered "at risk" for certain financing so long as the financing is qualified publicly-traded debt. NAA/NMHC/ASHA have long urged the repeal of the overly-complicated at-risk rules arguing they are no longer needed.

* Low-Income Housing Tax Credit. The per capita cap on the Low-Income Housing Tax Credit would be increased from $1.25 to $1.75 over a five year period, in 10 [cts.] increments, beginning in 2000. In addition, the bill includes a number of miscellaneous changes in the Housing Credit, including changes in state allocation plan requirements, an expansion of the "high cost area" rules, a $2 million minimum allocation for small states, a minimum six month period to meet the 10 percent expenditure test, and other changes.

* Private Activity Bond Cap. The schedule for phasing-up an increase in the private activity bond cap would be accelerated. Currently, the increase from $50 per resident (with a minimum of $150 million) to $75 per resident (with a minimum of $225 million) is scheduled to occur between 2003 and 2007. The bill would accelerate the beginning date of the five year phase-in to 2000.

* Alternative Minimum Tax Relief. Beginning in 2005 the individual AMT would be phased-out over the following schedule: 80 percent of AMT liability in 2005, 70 percent in 2006, 60 percent in 2007, repeal in 2008. The bill would allow an individual to claim personal, non-refundable credits without regard to the AMT.

* Long-Term Care Insurance. The cost of long-term care insurance would be deductible to individuals regardless of whether they itemize their deductions. This would be phased-in as follows: 25 percent deduction in 2002 through 2004, 35 percent in 2005, 65 percent in 2006, and 100 percent thereafter.


NAA/NMHC/ASHA have learned that the same trial lawyers and states' attorneys general involved in the tobacco and gun manufacturer litigation are considering filing lawsuits against the lead-based paint industry. The suits would allege that the paint industry deceived the public about the hazards of lead-based paint. Despite the fact that housing providers, like other consumers, simply used a product that was legal ar the time, some press accounts of the brewing legal storm are reporting that lead poisoning results from poor maintenance by property owners. However, these same accounts do not fault paint manufacturers who may have knowingly included a harmful ingredient in their products. NAA/NMHC/ASHA will continue to monitor this issue.


At the urging of an NAA/NMHC/ASHA led coalition, HUD has issued a notice (64 FR 35175) modifying and clarifying funding under the Fair Housing Initiatives Program (FHIP) to reduce potential conflicts of interest. The FHIP program provides grants to private, nonprofit groups to investigate housing discrimination allegations and to provide fair housing education. In a May 11, 1998, letter to Senator Barbara Mikulski, HUD originally agreed to address conflicts of interest, frivolous claims, grantee abuses, and testing activities in the FHIP program. The June 30, 1999 notice implements a process to address complaints filed by the public about program abuses by FHIP grantees. FHIP grantees will also now be required to reimburse HUD for any funds collected as the result of enforcement activities. Finally, HUD will no longer assess FHIP grantees on the basis of how many fair housing complaints they file. Although the changes are a positive step, NAA/NMHC/ASHA remain concerned about the potential for abuse in the program and will continue to monitor the issue closely.


NAA has additional copies of the Lead-Based Paint Pre-Renovation Education Rule poster which was inserted in the July/August 1999 issue of Units magazine. Requests for copies of the poster can be faxed to 703/518-6191 with a return name and address.

Information compiled by NAA/NMHC Joint legislative Staff Senior Vice President Clarine Nardi Riddle; Vice President of Tax Jim Arbury; Vice President of Communications Kim Duty; Vice President of Property Management Jay Harris; Vice President of Environment Eileen Lee; Vice President of Housing and Finance Stephen Lefkovirs; and Vice President of Building Codes Ron Nickson.
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Geographic Code:1USA
Date:Sep 1, 1999
Next Article:The "Clean Sweep".

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