Æðµã´«Ã½

The House Ways and Means Committee begins debate today on a nearly 400-page tax bill that Æðµã´«Ã½ believes is very positive for small businesses and real estate. Æðµã´«Ã½ has sent a letter of support to the committee as well as urging it to make improvements to the bill.

In the past months, Æðµã´«Ã½ has raised concerns on the potential elimination of businesses’ ability to deduct property taxes, changes to the mortgage interest deduction, and the elimination of energy tax credits. And throughout this process, we have also supported the effort to increase the $10,000 cap on state and local taxes (SALT) for individuals, which is a priority for our members in high-cost states.

Æðµã´«Ã½ secured several key victories in the House tax bill:

• Business SALT was not included, meaning that businesses can deduct property taxes paid to state or local governments in full.
• The individual SALT limit would increase from $10,000 up to $15,000 for singles and $30,000 for couples (with some phaseouts for high earners).
• The Low-Income Housing Tax Credit would be expanded.
• The Tax Cuts and Jobs Act would be made permanent, including the tax rate structure and increased exemptions for the Alternative Minimum Tax.
• The Section 199A Qualified Business Income Deduction, which helps provide tax parity for pass-through entities, would be enhanced by increasing the deduction from 20% to 23%.
• The estate tax exemption would increase to $15 million.
• 100% bonus depreciation would be restored.
• Opportunity Zones would be extended.

The bill also restores and revamps a limitation on itemized deductions known as the Pease limitation. The new mechanism would limit the maximum value of tax deductions to 35 cents per dollar deducted. This only applies to taxpayers in the top 37% bracket (singles earning more than $609K, couples earning above $731K), who otherwise would receive a deduction of 37 cents per dollar, a difference of two cents.

Some Energy Tax Credits Face Early Termination

The bill proposes to end several of the energy tax credits used in our industry:

1. Section 45L New Energy Efficient Home Tax Credit would be eliminated after Dec. 31, 2025 (currently runs through 2032). This is a $2,500 tax credit for energy efficient new homes obtaining Energy Star certification, with a higher tier for net-zero ready homes. This provision includes a special rule allowing homes that have commenced construction before May 12, 2025, to qualify for the credit if they are acquired by Dec. 31, 2026.
2. Section 25D Residential Clean Energy Credit would be eliminated after Dec. 31, 2025 (currently runs through 2032). Under current law, taxpayers may claim a credit for residential expenditures for solar electric property, solar water heating property, fuel cell property, small wind energy property, geothermal heat pump property, and battery storage property. The value of the credit is 30% of the expenditures.

Fortunately, the bill retains the Section 48E Clean Electricity Tax Credit, which was previously known as the Investment Tax Credit. However, the bill would move up the phase-out period to start in 2029 and eliminate the credit by 2031. 48E was otherwise set to phase-out starting in 2032. This is a 30% tax credit for businesses installing solar, wind or geothermal.

This is the first step in the legislative process, and there are areas of improvement we will seek. Æðµã´«Ã½ is urging the Ways and Means Committee to reconsider the termination of the Section 45L New Energy Efficient Home Tax Credit and the Section 25D Residential Clean Energy Credit. The Section 45L tax credit is claimed by single-family builders serving every price point as well as rental housing, including affordable rental housing financed with the Low-Income Housing Tax Credit. Æðµã´«Ã½ believes the most effective way to promote energy efficiency is through voluntary tax incentives.