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attributable to an active trade or business, as well as impose surtaxes on upper-income Americans. We joined over 100 associations in a November 3 letter expressing our opposition to these proposals.
Following months of NMHC advocacy, several previously considered tax increases have been left out of the package—including any changes to like- kind exchanges, increases in the ordinary income tax rates, the general 20 percent capital gains tax rate, the tax treatment of carried interest and the 20 percent pass-through deduction or the taxation of unrealized capital gains at death. A provision in the Ways and Means bill that would have restricted the ability to use IRAs to make certain types of real estate investments is also not included.
INDIVIDUAL INCOME TAX RATES
Although the Framework does not increase the top 37 percent tax bracket, it imposes a 5 percent surtax on taxpayers earning over $10 million in modified adjusted gross income (AGI) (i.e., adjusted gross income less investment interest expense) and an additional 3 percent surtax on taxpayers earning over $25 million in modified AGI.
Notably, there are no changes made to the 20 percent Section 199A pass-through deduction.
In sum, the top marginal income tax rate would rise to 41.4 percent from today’s 29.6 percent when the impact of the net investment income tax (see below) is included in calculations.
CAPITAL GAINS INCOME TAX RATES
Although the Framework does not increase the top 20 percent capital gain tax, it imposes a 5 percent surtax on taxpayers earning over $10 million in modified adjusted gross income (AGI) (i.e., adjusted gross income less investment interest expense) and an additional 3 percent surtax on taxpayers earning over $25 million in modified AGI.
In sum, the top capital gains tax rate would rise to 31.8 percent from today’s 20 percent when the impact of the net investment income tax (see below) is included in calculations.
NET INVESTMENT INCOME TAX
The proposal would expand the current-law 3.8 percent net investment income tax to include net investment income (i.e., capital gains, interest, dividends, annuities, royalties, and rents) earned in the ordinary course of a trade or business by single
CS-10 DECEMBER 2021 - APARTMENT MANAGEMENT MAGAZINE
filers earning over $400,000 and married couples earning over $500,000. It would not apply to any wages on which FICA is currently imposed.
EXCESS BUSINESSES LOSSES
The proposal makes permanent a provision limiting excess business losses that was otherwise set to expire at the end of 2026. Under current law, a non- corporate taxpayer is considered to have an excess business loss if their total business deductions exceed business income plus $250,000 for single filers and $500,000 for joint filers. Additionally, while current law allows excess businesses losses to be treated as a net operating loss, the proposal would modify this treatment and not allow losses to offset wages or portfolio income in future years. Losses, however, could be carried forward.
LOW-INCOME HOUSING TAX CREDIT
The modifications to LITHC would increase credit authority for 2022-2024 but reduce credit authority in 2025 to levels below 2021. In addition, the proposal would for years 2022-2026 reduce to 25 percent from 50 percent the portion of a project that must be financed by tax-exempt bonds to access 4 percent LIHTCs. Finally, at least 8 percent of LIHTCs would have to be used to develop buildings serving extremely low-income households. Such projects would also receive a 50 percent basis boost.
STATE AND LOCAL TAX (SALT) DEDUCTION CAP
The measure would increase the $10,000 cap on the state and local income tax deduction to $80,000 for the years 2021 through 2030.
ENERGY TAX INCENTIVES
The proposal would modify energy tax incentives available to the multifamily industry. Firms meeting baseline requirements would receive a base credit, but they would have to meet prevailing wages and apprenticeship requirements to receive a bonus credit.
Specifically, firms can quintuple the base credit if they pay all contractors and subcontractors prevailing wages. Projects would also have to be staffed by apprentices (5 percent of labor hours must be performed by apprentices for projects commencing construction in 2022, 10 percent in 2023, and 15 percent thereafter, with a minimum of one apprentice for each contractor or subcontractor employing at least four workers. Exemptions would
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