Commercial Investment Real Estate Winter 2020 | Page 30

L
ast year proved to be one of legislative
gridlock. In 2019, Congress enacted
only 105 laws. While the 116th Con-
gress, running from Jan. 3, 2019, to Jan. 3,
2020, is only halfway through its term, in
comparison, the previous Congress passed
443 laws and the 114th Congress enacted 329.
Gridlock is not expected to improve
with the political acrimony involved in Pres-
ident Donald Trump’s impeachment, his
planned upcoming trial in the Senate, and
the 2020 presidential election. While 2019
opened with hope for a comprehensive in-
frastructure package and for long-term reau-
thorization and reform of the National Flood
Insurance Program, neither of these legisla-
tive items moved forward. Flood insurance
continues to receive short-term extensions
— there have been 15 since September 2017,
with the latest extension through September
30, 2020 — and movement on an infra-
structure package now seems unlikely, with
continued contention over a border wall
derailing bipartisan movement on the issue.
While legislative activity was minimal
this year, the U.S. Department of the Treasury
did issue several regulations effectuating the
2017 tax reform law that positively impacted
commercial real estate, primarily the second
round of proposed opportunity zone rules
released in April. The Internal Revenue Ser-
vice also issued key guidance on the Section
199A deduction for pass-through businesses,
which clarified a safe harbor to help real es-
tate owners determine if they qualify for the
20 percent deduction for qualified business
income. The guidance eases the require-
ments for owners of mixed-use real estate
to qualify for the deduction. “Treasury and
the IRS have really done some great work in
issuing guidance that helps owners of com-
mercial property,” says Evan Liddiard, CPA,
director of federal tax policy for the National
Association of REALTORS®. The opportu-
nity zone rules have gone a long way toward
giving interested investors what they need
to get started with OZs. And the final regu-
lations on Section 199A could scarcely have
been better for real estate professionals and
owners of rental property.”
One end-of-year legislative highlight
for commercial real estate was that as part
of the last-minute spending bill signed into
law by President Trump, the Terrorism Risk
Insurance Act was reauthorized for seven
years. This risk insurance program provides
a federal backstop for terrorism risk insur-
ance. Provided by the Treasury Department,
this federal reinsurance helped stabilize the
insurance market.
This “clean” and bipartisan-sup-
ported reauthorization makes no sig-
nificant changes to the program, except
for mandating a study on the emerging
threat of cyberterrorism.
28
COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE
Here are some of the key legislative
issues impacting commercial real estate that
will likely receive attention in the second half
of the 116th Congress.
TAX REFORM IMPLEMENTATION
Several issues remain outstanding in the
implementation of the technical details
of tax reform. In the haste of passing such
a comprehensive piece of legislation in a
short timeframe, Congress inadvertently
lengthened a 39-year cost recovery period to
qualified improvement property instead of
the immediate write-off that was intended.
This error translates to higher after-tax costs
for modernizing or renovating the interi-
ors of many types of commercial buildings.
Congress introduced technical correction
legislation in 2019, but it failed to move
forward due to disagreements over other
possible changes to the tax reform law. In
addition, real estate investors had to wait
until December 19, 2019, for the Treasury
Department to issue its final regulations on
the opportunity zone tax incentive program.
While Treasury had indicated that the two
sets of released proposed rules could be used
to make investment decisions, the lack of
final rules until late in the year contributed
to some uncertainty related to the program.
NATIONAL FLOOD INSURANCE PROGRAM
While the real estate industry enjoyed a
few weeks of optimism this summer that a
long-term reauthorization bill might see real
movement, flood insurance reform and re-
authorization continued to get kicked down
the road with four additional short-term
extensions in 2019. The five-year reauthori-
zation bill that the House Financial Services
Committee passed in June requires utilizing
modernized flood-mapping technology to
improve map accuracy, provides pre-disaster
mitigation funding, and removes some of
the hurdles to the private insurance market.
At press time, the program was included in
the spending bill signed by President Trump
on December 20 and extended through
September 30, 2020. Despite this pattern
of short-term extensions, flood insurance
reform and reauthorization have bipartisan
support, and CCIM Institute will continue
advocating in collaboration with NAR for
such a reauthorization in 2020.
SUSTAINABILITY INCENTIVES
CCIM Institute has been advocating for the
reinstatement and extension of the Sec-
tion 179D deduction for energy efficient
commercial buildings for the past several
years through coalition work, the institute’s
in-district advocacy efforts, and in collabo-
ration with NAR. The deduction encourages
the construction and rehabilitation of new
and existing buildings to state-of-the-art
efficiency levels and allows the property
owner to decide the method of energy re-
duction. As part of the end-of-year appropri-
ations bill to fund the government through
fiscal year 2020, Section 179D was retroac-
tively extended from Jan. 1, 2018, through
2020. This clean extension does not include
any changes to the deduction, and CCIM
Institute will continue advocating for a lon-
ger-term extension and strengthening of this
tax tool.
In November, a draft green energy tax
package was introduced by Democrats in
the House that would extend Section 179D
through 2024 and would also makes chang-
es to increase the deduction. The package
includes a multitude of sustainability incen-
tives, with several tax credits for utilizing
renewable energy resources. While this tax
package is unlikely to pass in its proposed
To encourage sustainability in development, CCIM Institute
is pushing for the reinstatement of the Section 179D
deduction for energy efficient commercial buildings.
form, a multiyear extension of Section 179D
would allow for the longer-term planning
that property owners need to take full ad-
vantage of the deduction.
Inclusion of the deduction in the
end-of-year funding bill signals that House
Democrats may be interested in taking up a
longer-term extension and possible reform
to Section 179D in 2020. “The Green Act
adds to a series of proposals that collectively
serve as a strong foundation for considering
a long-term extension of and some potential
reforms to Section 179D, reinforcing strong
interest from Congress on Section 179D’s
importance in the energy efficiency and
sustainability conversation,” says Karishma
WINTER 2020