Legal issues

Legislative Update

By D.D. Ismail |

Last year several key legislative initiatives affecting commercial real estate were signed into law, including bankruptcy reform, energy measures, tort reform, and do-not-fax provisions. The following issues remain open for resolution in the 109th congressional session.

Banks in Real Estate

The CCIM Institute continues to work with the National Association of Realtors against a Federal Reserve Board and Department of Treasury proposal that would allow bank holding companies to engage in real estate brokerage activities. At last April’s Capitol Hill visit, CCIMs and Realtors lobbied for the Community Choice in Real Estate Act, which would prohibit such activities.

In addition, a counter bill was introduced last year that proposes allowing national bank subsidiaries and financial holding companies to own real estate brokerage, leasing, and management groups. In response, NAR past President Al Mansell testified before the House Financial Services Committee on June 15, 2005, in strong opposition to the initiative. Further debate on this topic is expected this year.

Tax Reform

Last November President Bush’s Tax Reform Advisory Panel proposed changes to the U.S. tax code. Specific recommendations in the proposal could affect commercial real estate significantly, including:

Deducting the cost of all investment in real and personal property earned. For amounts in which deductions cannot be made when an asset is in service, carry-over periods would be given. The full price of the asset would be expensed regardless if it is debt-financed;

• Taxing capital gains at 15 percent or possibly as low as 8.25 percent;

• Converting a mortgage interest deduction to a 15 percent tax credit;

• Eliminating second-home tax deductions;

• Eliminating home equity loan deductions;

• Retracting property tax deductions as well as other state and local taxes;

• Reducing the $1 million cap on mortgages;

• Raising the amount of gain to be excluded in principal residence sales but reducing the frequency in which exclusions can be taken; and

• Repealing the alternative minimum tax provision.

The institute will provide more information on tax reform changes as it becomes available. The Tax Reform Advisory Panel’s complete report is available online at www.taxreformpanel.gov/final-report.

Health Plan Legislation

Last July the U.S. House of Representatives passed the Small Business Health Fairness Act of 2005. The legislation amends the Employee Retirement Income Security Act of 1974 to provide for the creation of small-business health plans, also known as association health plans. In its current form, the legislation permits small businesses to group together, increasing their bargaining power with health-care providers and possibly lowering their overhead costs up to 30 percent. The legislation has been referred to the Senate Committee on Health, Education, Labor, and Pensions and a compromise on SBHPs is expected to be reached soon. The institute continues to work with NAR and the Institute of Real Estate Management to lobby Congress in favor of SBHPs.