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Among recommendations from the Obama Administration’s deficit reduction committee toward the end of last year , a proposal to tax capital gains and dividends as ordinary income would have negative consequences for commercial builders by raising taxes on the sale of properties like market-rate apartment buildings and light commercial property.
If this proposal were to be adopted, the tax on these sales would rise from today’s preferred rate of 15% to an ordinary income rate, which could be as high as almost 40%. This would greatly reduce profits from light commercial properties that are held and operated for several years and then sold.
“This commission could not have picked a worse time to come out with concepts to further chip away at the confidence of the commercial real estate investor,” said National Commercial Builders Council Chairman Carl Harris.
“These changes would continue to have investors second guess projects they were about to move forward with,” Harris said. “Tax reasons are only part of the equation when deciding to move forward on a project, but in these times of uncertainty, decreased margins and low cap rates, this will not help the recovery and job creation needed to decrease the deficit.”
Bernard Markstein, NAHB’s vice president for forecasting and analysis, added that conjecture over the shift in tax policy is poorly timed for an industry that has been bouncing along the bottom and only recently seen signs of slight improvement, with prospects for moderate growth in 2011.
“With both residential and commercial construction activity operating at extremely low levels, any increase in their tax burden would be an additional impediment to their eventual return to health and their ability to contribute to the national economic recovery,” Markstein said.
For more information, e-mail Kisha DeSandies at NAHB, or call her at 800-368-5242 x8455.