IREM and CCIM Take Issues to Capitol Hill

May 8, 2008
Energy tax credits, climate change, disaster insurance, leasehold improvements, and capital gains are all being discussed
The Chicago-based Institute of Real Estate Management (IREM) and the Certified Commercial Investor Member (CCIM) Institute recently joined forces to raise awareness on Capitol Hill about key issues facing the commercial real estate industry.

The five critical topics discussed were:

1. Energy Tax Credits
IREM and CCIM Institute believe that incentives for energy-efficiency investments are the best way to promote conservation. While many legislative proposals threaten to require mandates for green and net-zero-energy buildings, the two organizations support positive incentives as the best way to achieve the goal.

The organizations support HR 5351, the Renewable Energy Conservation Act of 2008. This legislation will extend tax incentives for energy efficiency in commercial buildings and allow a 5-year recovery period for the depreciation of qualified energy-management devices.

2. Climate Change/Energy
Today, commercial buildings make up 73 billion square feet of real estate in the United States. IREM and the CCIM Institute believe that lawmakers need to understand the benefits of market-based incentives to retrofit existing buildings for energy efficiency and the serious consequences to mandating the same.

3. Natural Disaster Insurance
The intensity of large natural disasters in recent years has made the acquisition of adequate property insurance very difficult in some areas. Insurers are declining to write policies, canceling existing policies, or increasing premiums on existing policies. Recently, Hurricanes Katrina and Rita have refocused attention on this issue. The viability of the insurance market is critical to real estate financing.

IREM and CCIM Institute members lobbied their legislators to amend the Homeowners Defense Act (HR 3355 and S 2310) to include protection for commercial and multi-family projects.

4. Leasehold Improvements
IREM and CCIM Institute believe that it would be unrealistic to revert to the prior recovery period of 39 years depreciable life for tenant improvements. In their view, a realistic cost-recovery program (such as 10 to 15 years) is a reasonable incentive to keep downtown office, commercial, and retail space modern, efficient, and competitive within suburban space. In addition, such a change would more closely mirror corresponding lease terms for these properties.

IREM and CCIM Institute support the Leasehold Improvement Depreciation Act of 2007 (HR 2014/S 1361), which would make the 15-year recovery period for leasehold improvements permanent.

5. Capital Gains/Depreciation Recapture
Under current law, capital gains are taxed at a maximum rate of 15 percent. This rate is temporary and will revert to 20 percent as of Jan. 1, 2011. When capital gains tax rates were reduced to 15 percent from 20 percent in 2003, the depreciation recapture rate remained at 25 percent. Before 1997, depreciation recapture amounts were taxed at the same rate as capital gains.

IREM and CCIM Institute support a level playing field for those who choose to invest in real estate and, thus, oppose rates for depreciation recapture that are higher than the capital gains rate.

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