An Update on Expiring Tax Provisions

Sept. 25, 2006
BOMA provides an update on three tax policies aimed at stimulating investment and development in the commercial real estate industry

Throughout the 109th Congress, the Building Owners and Managers Association (BOMA) Intl.’s legislative efforts have focused on extending three tax policies aimed at stimulating investment and development in the commercial real estate industry:

  1. the extension of the reduced rate on capital gains and dividends,
  2. extension of the 15-year reduced timeline for depreciation of leasehold improvements, and
  3. extension of legislation relating to the expensing of brownfields clean-up costs.

Through legislation enacted in 2003, the tax rate on capital gains and dividends was reduced from 20 percent to 15 percent through the end of 2008. In separate legislation enacted in 2004, the timeline for depreciating leasehold improvements was lowered from 39 years to 15 years. The legislation also permitted brownfields remediation costs to be expensed in the year in which they are incurred. Both of these provisions expired at the end of 2005. BOMA’s policy positions call for the permanent reduction or elimination of capital-gains tax and a depreciation schedule for leasehold improvements that more accurately reflects the terms of most leases.

Last year, Congress began the process of extending each of these three tax policies, which were grouped together with a number of other measures and collectively referred to as the “expiring tax provisions.” Both the House of Representatives and the Senate passed the Tax Increase Prevention and Reconciliation Act of 2005; however, there were significant differences in the House and Senate’s final versions. The House bill extended the reduced rate on capital gains and dividends for an additional 2 years, while the Senate bill did not. Both chambers, though, looked favorably upon a 1-year extension of leasehold depreciation and brownfields, and both versions included these two BOMA priorities.

The process of debating the differences between the two bills wore on into 2006, with little movement taking place in 2005. The most controversial issues in the tax-conference debate were the reduced rate on capital gains and dividends, and provisions to provide relief to individuals being impacted by the alternative minimum tax (AMT). The AMT was initially implemented in the late 1960s to ensure that the wealthiest Americans don’t completely avoid paying some tax. However, the tax has now reached more individuals in the middle class. Democrats argued for a complete “fix” of the AMT in lieu of extending capital-gains and dividends tax relief. Republicans, on the other hand, advocated a 1-year “patch” to the policy along with extension of the capital-gains and dividends tax break.

Throughout the process, BOMA met with members and staff of both chambers, urging them to include all three of BOMA’s priorities in the final conference report. Unfortunately, what materialized in May 2006 was a bill that included only one of BOMA’s priorities - a 2-year extension of the reduced rate on capital gains and dividends along with a short-term patch of the AMT. Leasehold depreciation and brownfields provisions were jettisoned with a number of other popular “extenders” and targeted for another vehicle: the pension reform legislation.

Though the toughest battle was over, BOMA efforts turned to extending the two other remaining priorities. With the summer fast approaching and election-year politics in play, final action on the pension bill was halted - and, with it, the hopes of passing the 1-year tax extenders prior to the July 4th recess. At the same time, efforts by Republicans to permanently reduce the estate tax were proving unsuccessful as well.

Just prior to their August recess, Republican leaders in the House changed course. Instead of attempting to attach the expiring tax provisions to the pension bill, they decided to make a political maneuver in an effort to garner more Senate support for the controversial estate tax legislation. Recognizing the almost semi-annual effort by Democrats to push for an increase in the minimum wage and the popularity of the tax extenders, House Republicans put together a package termed the “trifecta” bill. In addition to the $2.10 increase in the minimum wage and the extension of the expiring tax provisions retroactive to the beginning of 2006, the trifecta bill also included the reduction in estate tax. While leadership knew that passage of the legislation was assured in the House, it was unclear about its chances in the Senate. The move to package the bill with the three major policies was designed to help make passage of the estate tax more palatable to Senators on the fence. Unfortunately, the fate of the bill was much different in the Senate, where it was unable to obtain the 60 votes needed to pass a motion to proceed that would limit debate and ultimately lead to a vote.

Shortly after, the Senate adjourned for the summer, leaving leasehold depreciation and brownfields expensing in limbo for the remainder of the year. Hope is not completely lost for 2006; it is still possible that these and the other tax extenders could receive consideration prior to the next recess, scheduled for this month, or in a lame duck session in mid-November after the elections. If no success is found this year, BOMA will look to re-energize efforts to secure passage early in the 110th Session of Congress, which will begin in January 2007.

For more information on these and other issues, call BOMA Intl. at (202) 408-2662 or visit (

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