The U.S. Senate adjourned its business for the year on Tuesday night, leaving behind a decidedly mixed bag for the real estate industry.
Homeowners and Realtors® will benefit from the Senate’s passage of the “Mortgage Forgiveness Tax Relief Act,” which was included in a package of Tax Extenders now headed to the President’s desk for signature. When signed into law, this bill will extend through 2014 an income tax exemption on mortgage debt forgiven in a short sale or a workout for principal residences.
For commercial property owners and brokers, the bill also extends through 2014 the 15-year straight-line cost recovery period for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements. Extended tax credits and deductions for energy-efficient new homes and commercial buildings are also included in the legislation.
A number of real estate industry trade groups, including the National Association of REALTORS® and NAIOP, have long advocated for the passage of these tax extensions, and applauded the Senate’s passage of the bill. You can read a detailed summary of the bill’s tax provisions HERE.
However, the Senate failed to pass another critical piece of legislation sought by commercial property owners: a six-year reauthorization of the Terrorism Risk Insurance Act (TRIA) that passed the U.S House of Representatives with overwhelming bipartisan support. The failure to extend TRIA could have the very real impact of stalling commercial real estate development around the country, as it allows the federal government’s reinsurance backstop program for terrorism insurance to expire on December 31st of this year.
While both chambers of Congress widely supported a TRIA extension, an objection raised by GOP Senator Tom Coburn (OK) over the lack of a state op-out provision kept the bill from coming to the floor for a vote. Senate Democratic leaders were also opposed to an unrelated provision added to the bill by House Republicans that would have weakened the Dodd-Frank financial reform law.
The Terrorism Risk Insurance program was created a little more than a year after the Sept. 11, 2001, terrorist attacks, and enabled the federal government to pay for most losses above $100 million suffered by businesses in any terrorist attacks. Without the backstop, most insurance companies are unlikely to offer terrorism risk coverage, seriously jeopardizing the lending environment for commercial real estate.
Congress is expected to take up new legislation to reauthorize TRIA when it reconvenes in January.