LEGISLATIVE AFFAIRS: Federal Legislative and Regulatory Update
Philip Weiden | October 2018
The Tax Cuts and Jobs Act legislation, passed earlier this year, includes a 20% deduction from the net business income of sole proprietors and owners of S corporations, partnerships, and limited liability companies. The new deduction is intended to provide roughly the same tax rate cut the act provided to regular corporations. However, it is unclear whether owners of rental real estate will be able to claim the deduction.
NAR has asked the Treasury Department and Internal Revenue Service, in a letter, to treat all real property rental activity as eligible for the 20% deduction. The letter asserts that without this change, the 10 million American owners of rental real estate will be forced to wade through voluminous and confusing tax cases and conflicting IRS positions in order to determine for themselves whether their rental activity constitutes a “trade or business,” which is a requirement for the deduction. The letter also lists factors that indicate Congress intended the deduction to be available to the great majority of owners of rental property without the burden of excess complexity.
The IRS will hold a public hearing on the proposed regulations on Oct. 16. NAR has requested that a representative of the association be allowed to testify on this issue. NAR sent an earlier comment letter to Treasury and IRS on another issue related to the 20% deduction, on the question of whether real estate brokerage activities qualify for it. In a huge win for Realtors, the proposed regulations reflected the position suggested by the letter.
NAR, in coalition with other real estate industry groups, joined a letter to the U.S. House of Representatives Leadership opposing legislative efforts to undermine the Supreme Court’s ruling in South Dakota v. Wayfair, the case decided in June 2018, which gives states the authority to require online sellers to collect and remit sales tax. Prior to the Wayfair ruling, the states have been waiting for Congress to pass legislation allowing this, as e-commerce has grown and sales tax collection declined. Brick-and-mortar retailers—commercial real estate clients—have been especially impacted by this, as they are perceived to have higher prices due to charging sales tax on them at the point of sale. Despite many attempts though, Congress failed to enact legislation resolving this issue.
NAR supports a level playing field for online retailers and brick-and-mortar stores, and joined two amicus briefs to the Supreme Court in favor of giving states the authority to require collection of sales tax—the position that ultimately prevailed. Post-Wayfair, the states have acted in an orderly manner—many are working on legislative options that will make collection of sales tax from their residents go smoothly for online retailers, and most are waiting until Jan. 1, 2019 to begin enforcement to avoid confusion. However, some members of Congress who oppose the Wayfair decision have introduced or are considering legislation that would effectively neutralize Wayfair, halting progress on this issue and continuing to place brick-and-mortar retailers at a disadvantage. Thus, the coalition letter points out the orderliness of the implementation thus far, and urges Congress not to enact legislation that would impede progress.
On Sept. 28, the Federal Housing Administration released Mortgagee Letter 2018-06 which requires a second appraisal for certain home equity conversion mortgages. Given the recent volatility in the HECM program and its disproportionate effect on the Mutual Mortgage Insurance Fund, FHA has decided to require that higher risk HECMs undertake a second appraisal to ensure credibility in assessing the collateral risk.