Real Estate Industry Warns Congress on Business Tax Deductions

As Congress ramps up discussions on extending the 2017 Tax Cuts and Jobs Act (TCJA), which will likely also include some of President Trump’s campaign promises on taxes, NAHB is engaging with lawmakers to ensure the tax code continues to promote residential construction and economic growth. 

Out of concern for the $4.6 trillion cost associated with extending these tax cuts, Congress is considering other mitigating tax changes. An area of emerging concern is a proposal to cap or eliminate the ability of a business to deduct state and local tax (SALT) payments — including property tax payments — from its federal taxes.

Businesses currently can deduct property taxes paid to state or local governments in full. This represents a basic tenant of our tax code that businesses are taxed on profits, not gross revenue. 

Restricting or eliminating the ability of real estate businesses to deduct SALT expenses would drive up operating costs, particularly for multifamily properties: On average, nearly 40% of operating expenses for a multifamily unit are property tax payments. NAHB conservatively estimates that rental properties pay nearly $170 billion annually in property taxes.

Registering deep concern over how this SALT proposal could impact housing and the economy, 17 real estate groups, including NAHB, sent a letter to Congress last week warning that pursuing this strategy would significantly harm the real estate industry, reduce investment and lower property values. The letter cautioned that a “tax increase of this scale could put the current economic expansion in peril and substantially increase the risk of a recession.” 

Congress is in the early stages of drafting this tax bill. NAHB is taking potential limitations to business SALT seriously, but we also note that lawmakers have yet to make any final decisions.    

Congress has already imposed limits on individual SALT deductions. In 2017, TCJA included a $10,000 cap on SALT deductions for personal taxes. Lawmakers from high-tax states have criticized this cap as harmful to their constituents. During the election, Trump committed to increasing the $10,000 cap on individual SALT deductions, which is expected to be included in any tax bill. NAHB supports increasing the SALT cap to reflect inflation, cost of living differences and to eliminate the marriage penalty. (Under current law, single filers and couples are both subject to the same limit.) 

Absent Congress acting, the majority of the TCJA tax cuts are set to expire at the end of this year, which would represent a $4 trillion tax increase. NAHB supports extending TCJA and will be fully engaged in the tax debate.