On December 20, Congress finally sent H.R. 1, the Tax Cuts and Jobs Act, to the President’s desk for signature.
After significant improvements made during the legislative process, and due to the robust engagement efforts of NAHB and its membership, NAHB issued our support for the final tax bill.
Changes to the tax code will take effect for the tax year starting January 1, 2018, and include the following provisions of note to NAHB’s membership:
· Mortgage interest deduction. Retains the mortgage interest deduction and the deduction for second homes, but reduces the mortgage interest cap from $1 million to $750,000.
· State and local property taxes. Allows taxpayers to deduct up to $10,000 of state and local taxes, including property taxes and the choice of income or sales taxes.
· Capital gains exclusion. Maintains existing law that allows home owners to exclude up to $250,000 (or $500,000 for married couples) in capital gains on the profit from the sale of a home if they have lived in the house for two of the last five years.
· HELOC. Eliminates the deduction for interest on home equity loans.
· Private activity bonds. Retains private activity bonds (PABs), which will enable the Low Income Housing Tax Credit to maintain its effectiveness as the most indispensable tool for the production of affordable housing. Without PABs, we would face the loss of more than 788,000 affordable rental units over the next decade.
· Alternative Minimum Tax. Eliminates the Alternative Minimum Tax (AMT) for corporations and increases the AMT exemption amounts and phase-out thresholds for individuals.
· Individual tax brackets. Retains seven tax brackets, with rates ranging from 10% to 37%. This will provide tax relief for individuals and small businesses and represents a tax cut for most taxpayers.
· Estate tax. Doubles the estate tax exemption.
· Carried interest. Retains existing carried interest rules, but assets must be held for three years.
· Pass-through deduction. Allows most taxpayers with pass-through income to deduct 20% of that income based on wages or on wages plus a capital element.
· Business interest deduction. Provides the taxpayer a choice of making a one-time election for a deduction limited to 30% of adjusted gross income; or for real estate, a 100% deduction for business interest, but with certain tradeoffs.
· Like-kind exchanges. Preserves the benefit for real estate investors to make tax-free exchanges of property, commonly referred to as “like-kind” exchanges.
· Multifamily depreciation. Gives the taxpayer the choice of taking 27.5- or 30-year depreciation, depending on how they elect to treat their business interest.
· Individual tax provision sunsets. Almost all individual tax elements – mortgage interest, state and local property taxes, individual brackets, etc. – expire at the end of 2025. Unless Congress acts, starting in 2026 these modifications will revert back to the tax code as it exists today in 2017.
In a victory for NAHB and the small business community, the National Labor Relations Board (NLRB) voted on December 14 to overturn its 2015 ruling in the case of Browning-Ferris Industries. The 3-2 vote effectively overturns an Obama-era decision that radically expanded the traditional definition for joint employer status and once again restores the sensible criteria that has worked so well for the economy for more than 30 years.
The Browning-Ferris decision made the standard for joint employment so broad and vague that an employer could be held liable for the labor and employment practices of independent contractors and subcontractors over which they have no direct control. By rescinding the Browning-Ferris standard, the NLRB has restored the traditional definition of joint employment in which a company must exercise ‘direct and immediate control’ over a worker in a business-to-business relationship. Home building firms and other small businesses who work closely with subcontractors and third-party vendors will now have more certainty and clarity regarding their employment decisions.
NAHB will also continue to urge the Senate to swiftly approve H.R. 3441, the Save Local Business Act, bipartisan legislation that passed the House in November and on which NAHB Chairman Granger MacDonald testified in October. The bill offers a more permanent legislative fix that codifies this standard under both the National Labor Relations and Fair Labor Standards Acts.
In a victory for NAHB, the House approved legislation to reauthorize the National Flood Insurance Program (NFIP) for five years back in November, which includes many NAHB-supported modifications to the program. Unfortunately, with tax reform taking up much of its bandwidth, the Senate was unable to act on a stand-alone bill before the end of the year, necessitating a temporary extension of the program to avoid triggering delays or cancellations of home sales across the country as a result of its expiration.
The House just passed, and the Senate is expected to pass tomorrow, a Continuing Resolution (CR) to fund the government through January 19 that includes a short term extension of the NFIP. This will grant legislators additional time to tackle must-pass spending and reauthorizing legislation when they return to Washington from the holiday break.
In November, the Commerce Department made a final decision to impose countervailing and anti-dumping duties on Canadian Lumber Imports. The Department moved to impose duties averaging 20.83% on Canadian lumber shipments into the U.S. This move was particularly disappointing given that NAHB had recently met with Commerce Secretary Wilbur Ross to express our concerns on this issue.
Lumber is a major component in new home construction and one-third of the lumber used in the U.S. last year was imported. The bulk of the imported lumber – more than 95% – came from Canada. Canada and the U.S. need to work cooperatively to achieve a long-term, stable solution in lumber trade that provides for a consistent and fairly priced supply of lumber. On the domestic front, policymakers need to take steps that will help U.S. lumber firms meet domestic demand. Those efforts must include better and more active management of our federally owned forests to promote healthier forests which face imminent danger posed by insects, disease and catastrophic wildfire damage.
Pro-Business Health Care Reforms
On October 12, President Trump issued an executive order on health care, directing several agencies to issue regulations that would ease restrictions on association health plans (AHPs) and health reimbursement arrangements (HRAs) to create more options for small businesses to provide health benefits to their employees. NAHB First Vice Chairman Randy Noel attended the signing ceremony at the White House’s invitation.
NAHB has long led the fight in support of association health plans, which would grant small businesses access to better and more affordable health care plans, allow them to negotiate lower costs for coverage, and level the playing field for smaller firms that want to help their workers and their families with their health care needs.
Moreover, the executive order would expand the use of health reimbursement arrangements, which allow small businesses to offer pre-tax dollars to insured employees to help pay premiums and/or other out-of-pocket costs associated with medical care and services.
A draft rule implementing the President’s directive on AHPs is currently at the Office of Management and Budget (OMB) for review and is expected to be published in the coming weeks. NAHB remains engaged with Congress and the White House on health care and plans to comment on the regulations. NAHB Senior Officers have already begun discussions to make sure the association stays on top of the issue and is positioned in the best possible way moving forward.
A federal judge struck down the Obama administration’s overtime rule that would have doubled the salary threshold for workers to be able to receive overtime pay. The Justice Department subsequently announced it would not appeal the ruling, effectively ending the Obama-era expansion of the overtime rule. However, the Administration has indicated it plans to issue its own new rulemaking updating the standard.