Lobbying for tax reform

By: J. David Chapman/December 28, 2017

I am the incoming president of the Central Oklahoma Commercial Association of Realtors. The organization was created by petitioning the National Association of Realtors for a commercial overlay local board to serve the needs of commercial real estate practitioners in the central Oklahoma area.

Every member of COCAR is therefore a member of NAR. NAR was second only to the U.S. Chamber of Commerce in the amount of money spent lobbying the government last year. When it became evident the president and Congress were serious about passing the first meaningful tax reform since 1986, lobbyists at NAR got busy. So, how did they do?

In the end, industry analysts predict the new tax code will strengthen demand in the multifamily sector and spur corporations to put more money into real estate assets and new development. Commercial property owners appear to be the significant beneficiaries of the new bill. The 1031 exchange provision will remain in place, and commercial property owners will still be entitled to a full mortgage interest deduction, in addition to benefiting from the reduced corporate tax rate of 21 percent. The tax bill reduces the depreciation period for multifamily and commercial properties to 25 years instead of the previous depreciation period for multifamily of 27.5 years and commercial properties of 39 years. Commonly used real estate entities referred to as pass-through entities such as partnerships and LLCs will benefit from a lower tax rate, and partners in these entities will now be taxed at their individual tax rate less a 20-percent deduction for business expenses.

On the home-purchasing front, the new tax framework will continue to allow for mortgage interest deductions; however, it eliminates the deduction for home equity loans. As has been widely reported, the new $10,000 cap on the deductions for state and local taxes will likely put a higher tax burden on residents of high-tax states, including New York and California. I doubt people will actually move from the desirable, high-tax cities as long as the cities maintain high-wage jobs and high-end amenities.

Those of you that know me know I am not a really political advocate; however, I am proud to lead an organization that deploys assets to protect the industry that I love. Thanks, NAR.

J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).