Eliminating property tax deductions might push costs higher for rental housing
The National Association of Home Builders (NAHB) is cautioning lawmakers about a tax proposal that could raise operating costs for real estate businesses, particularly multifamily rental properties.
As Congress debates extending the 2017 Tax Cuts and Jobs Act (TCJA), some legislators are considering new ways to offset the law’s estimated $4.6 trillion cost. One proposal under consideration involves limiting or entirely removing the ability of businesses to deduct state and local taxes (SALT), including property taxes, from their federal taxes.
NAHB said property taxes currently represent nearly 40% of operating expenses for multifamily units. The association estimates rental properties alone contribute about $170 billion annually in property tax payments nationwide.
“Restricting or eliminating the ability of real estate businesses to deduct SALT expenses would drive up operating costs, particularly for multifamily properties,” NAHB wrote in a blog post.
In a recent letter to Congress, NAHB and 16 other real estate groups expressed deep concern about the proposal, warning it could seriously harm the industry by discouraging investment and lowering property values.
They said that introducing "a tax increase of this scale could put the current economic expansion in peril and substantially increase the risk of a recession."
Right now, businesses can fully deduct property taxes from federal taxes. NAHB emphasizes that removing this deduction would significantly raise costs, particularly affecting the financial viability of multifamily projects.
In 2017, individual SALT deductions were capped at $10,000, sparking criticism from high-tax states. President Trump has committed to raising this cap for individuals as part of the ongoing tax discussions.
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NAHB supports increasing this individual deduction cap to better reflect inflation, regional cost-of-living differences, and to eliminate the existing marriage penalty.
Unless Congress acts, most TCJA provisions are set to expire at the end of this year, which would amount to a $4 trillion tax increase.
“NAHB supports extending TCJA and will be fully engaged in the tax debate,” the association said.
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