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Howard County Association of REALTORS® Legislative Update Center keeps you up-to-date on issues and pending real estate legislation that can impact both its members and the Howard County community. To view the current Federal, Maryland, or Howard County updates, click on the news items below and the Related Links to the left.
Federal Income Tax Reform
Discussion Draft Released February 26

On Wednesday February 26, 2014, the Chairman of the House Ways and Means Committee, Dave Camp (R-MI) released his long-awaited discussion draft for comprehensive reform of the tax code. In anticipation of the release, NAR sent a letter to all Members of the House on Monday reminding them of NAR's priorities in tax reform. Now that the draft has been released, NAR staff is carefully reviewing the contents to evaluate its impact on residential and commercial real estate and plans to share those findings with Congress. It is important to remember that the Camp bill is only a discussion draft and because of the political landscape and timeline, NAR does not believe any tax reform bill will become law this Congress. Please stay tuned for more details and analysis from NAR.

NAR Reaction to Tax Reform Discussion Draft
Statement from President Steve Brown

"NAR supports reforms that promote economic growth, but we strongly oppose severely altering the rules that govern ownership and investment in real estate. Real estate powers almost one-fifth of the U.S. economy, employs more than 17 million Americans, and contributes a quarter of all federal and state tax revenue and as much as 70 percent of local taxes."

"We are extremely disappointed with several of the provisions contained in U.S. House Ways and Means Chairman Dave Camp's tax reform draft released today, namely proposed limits on the mortgage interest deduction and capital gains, and the repeal of deductions for state and local property taxes. These proposed changes to the taxation of real estate will impact every single American, either directly or indirectly."

"NAR will carefully analyze the details of the Chairman's plan so we can best educate Congress and the public about how this plan would impact the owners, consumers, and producers of both residential and commercial real estate."

NAR Comments on Tax Reform Draft

On Jan. 16, 2014, NAR joined with a group of 18 other real estate associations in sending a comment letter to Senate Finance Committee Chairman Max Baucus (D-MT) regarding a staff discussion draft released by the Committee on Nov. 21, 2013. The discussion draft, one of a series of such drafts that set forth possible options for tax reform, was focused on cost recovery and tax accounting issues.

The Finance Committee draft included several proposals that would, if enacted, have serious negative effects on the investment in and ownership of commercial real estate. These include proposals to:

  • Increase the depreciable life of all real property to 43 years (the current tax law provides a depreciable life of 39 years for non-residential property, 27.5 years for residential property, and 15 years for qualified leasehold improvements*).
  • Repeal the provisions in section 1031 of the Internal Revenue Code, which allow owners of real property to exchange it for like-kind property on a tax-deferred basis.
  • Change the tax rate of gain on sale of real property that represents depreciation recapture from the current-law rate of 25 percent to ordinary income tax rates.
In short, the letter argues that the Committee's cost recovery and accounting tax reform discussion draft could have a severe, widespread, and chilling effect on U.S. real estate activity. By creating an arbitrary and discriminatory cost recovery system that is disconnected from the economic life of actual structures, the proposed reforms would reduce real estate investment and development, result in lower real estate values, and stifle the real estate industry's ability to continue creating new jobs as the economic recovery picks up steam.

The following is a summary of the 17-page comment letter:

The letter focuses on four main elements of the tax reform proposal: (1) the extension of the cost recovery period to 43 years for all real property; (2) the repeal of like-kind exchange rules; (3) the increase in the tax rate on recaptured depreciation; and (4) the retroactive application of all three of these proposals to preexisting investments. We see a strong a parallel with the unintended consequences that the sweeping reforms enacted in the Tax Reform Act of 1986 had on real estate in the late 1980s and early 1990s, when retroactive tax changes ushered in a real estate depression and led to the taxpayer bailout of savings and loan institutions. In many respects, the proposals in the discussion draft go beyond the prior reforms by raising taxes on sound and economically motivated real estate transactions.

First, modernizing cost recovery rules to accurately measure business income would require reducing, not lengthening, the depreciation schedules for real property. Today's depreciation system is less favorable for real property investment than at any time in the last 40 years. Unfortunately, the depreciation estimates underlying the discussion draft rely on outdated studies from the 1960s and 1970s. Recent research by a broad range of economists, academics, and government agencies has shown how technological change, transformations in the workplace, and other factors affect the useful life of structures. Without constant capital improvements, buildings become obsolete faster than ever.

Second, the deferral of gain on like-kind exchanges is a bedrock principle of tax policy and the statutory rule is nearly as old as the income tax itself. Rather than raising revenue, the proposal in the discussion draft to repeal like-kind exchange rules would have the undesired effect of "locking up" real estate assets in the hands of current owners. It would deter the transfer of real estate to owners with the resources to invest in job-creating building upgrades and improvements, undermine land conservation efforts, and deprive states and localities of much-needed tax revenue.

Third, by treating all recaptured depreciation in real estate transactions as ordinary income, the discussion draft would raise the tax rate nearly 60 percent on a significant share of the income from real estate transactions. The proposal would reverse the longstanding Congressional policy of applying different depreciation recapture rules to long-lived, capital-intensive real estate assets, where gain is more likely to reflect inflation than excessive depreciation.

Fourth, in applying all of these provisions to preexisting real estate investments, the discussion draft would penalize taxpayers who relied on well-established tax rules when committing their capital and sweat equity to a long-term investment. The retroactive application would undermine confidence in the tax system and raise doubts about future "rules of the road" for capital-intensive property investments.

The signatories are also concerned with the proposed repeal of the energy-efficient commercial buildings deduction, section 179D, which helps address a failure of the market to accurately take into account the value of energy-efficiency improvements to commercial buildings.

We recognize that the discussion draft is a first effort, the issues are complex, and the tradeoffs are significant. As mentioned, we are very grateful for the transparent and open process the Committee has created. With the right tax and regulatory policies-reforms that treat the industry consistently with other types of businesses, assure predictability for long-term investment, recognize the economically useful life of assets, and encourage capital formation-we believe real estate could create millions of new, middle-class jobs while also contributing to a more efficient and productive domestic economy and workforce.

* The provision allowing a 15-year depreciation period for qualified leasehold improvements expired at the end of 2013.

Comment Letter to Senator Baucus

March 24: Obama Signs Flood Insurance Relief Into Law

Daily Real Estate News

President Barack Obama signed into law a bipartisan bill that will delay flood insurance rate hikes for property owners nationwide.

The Homeowner Flood Insurance Affordability Act repeals the Federal Emergency Management Agency's authority to increase premium rates when a property is sold. It also refunds the excessive premium to those who bought a property before FEMA warned them of the rate increase. The bill limits premium increases to 18 percent annually on newer properties and 25 percent for some older ones. The senate approved the bill on March 13, and the House of Representatives March 4.

"Today, many months of hard work, negotiation and bipartisan compromise have culminated in a law that will end skyrocketing flood insurance costs for hundreds of thousands of home owners," says U.S. Rep. Maxine Waters, D-Calif. "Though the measure isn't perfect, it ensures there will be no more dramatic rate increases for families currently facing unaffordable premiums."

The rate hikes were part of the 2012 Biggert-Waters law, which had set out to gradually phase out flood insurance subsidies in an effort to shore up finances for the National Flood Insurance Program, which stands about $24 billion in debt, mainly due to catastrophic storms like Hurricane Katrina in 2005. As a result of the phase-out, some home owners who were not required to pay the full actuarial cost of their insurance were being faced with tens of thousands of dollars a year in flood insurance hikes.

"As the leading advocate for home and property owners, NAR applauds this bill for the relief and protection it will bring to businesses and families nationwide, who are experiencing financial hardship because of the extreme and sudden premium increases," NAR President Steve Brown had said after the Senate had approved the bill. "We believe this legislation will bring relief to property owners by ensuring a slow and steady phase in of risk-based increases."

March 13: Flood Insurance Bill Passes Senate

Late Thursday, March 13, 2014, the Senate passed the Homeowner Flood Insurance Affordability Act (H.R. 3370) by a vote of 72-22. By passing the measure already approved by the House, they avoid a conference committee and the bill will go to the President for his signature.

As passed, the bill repeals FEMA's authority to increase premium rates at time of sale or new flood map, and refunds the excessive premium to those who bought a property before FEMA warned them of the rate increase. Additionally, the bill limits premium increases to 18% annually on newer properties and 25% for some older ones.

To see NAR President Steve Brown's statement on passage, visit REALTOR.org.
Click here to see how your Senator voted on the measure.

NAR fully supported swift passage of the legislation.

Flood Insurance Update: January 17, 2014

By Austin Perez

On Jan. 16, 2014, Congress passed the Omnibus Appropriations Bill (H.R. 3547) to fund the federal government through Sept. 30, 2014. The bill prohibits FEMA from implementing future premium increases on "grandfathered properties" for nine months. It does not limit premium increases triggered by the sale of a property, which FEMA implemented Oct. 1, 2013. ("Grandfathered" property owners are allowed to keep the lower rate from older maps when new maps are issued.)

On Jan. 27, 2014, the Senate is scheduled to vote on the Homeowner Flood Insurance Affordability Act (S. 1926) sponsored by Senators Menendez (D-NJ) and Isakson (R-GA). The bill calls a 4-year timeout on increases both for the property buyers (including buyers of a second home or business) and the owners of grandfathered properties. The bill also establishes a flood insurance advocate within FEMA to investigate rate increases and assist property owners with multiple or miscalculated rate quotes.

This is a make-or-break moment for the bill in its current form. It will take 60 votes to move forward. Please contact both your Senators today and urge them to support the bill and oppose any poison pill amendments.

Issue Background

  • On Oct. 1, 2013, FEMA imposed full-risk rates on properties sold after July 2012.
  • Because FEMA retroactively applied the increase, many buyers between July 2012 and Oct. 2013 were not told of the increase before purchasing the property.
  • Experts have found numerous rate quote miscalculations and discrepancies calling into question the accuracy of many rate increases around the country.
  • In recent Congressional testimony, NAR provided several examples where the quoted rates exceeded the true risk rate by $10,000-$30,000 per year.
  • Only FEMA has access to the insurance data but missed the congressional deadline to submit an affordability report that could show whether the rate quote miscalculations are isolated incidences or part of a national pattern.
  • Until FEMA investigates and finally complies with the statutory requirement to report to Congress, NAR is calling for the 4 year time out. There are too many inaccurate rate quotes to ignore.
  • NAR is not objecting to full risk rates or a longer term phase in, but home buyers need a pause now while Congress works out the details and reviews FEMA's report.
  • The bill will not benefit only million dollar beach houses whose values far exceed the $250,000 coverage limit; middle class families whose homes values fall below this limit need a way to insure their property against flooding.
  • 5.6 million rely on NFIP in 20,000 communities where flood insurance is required for a mortgage.
A delay does not increase overall NFIP borrowing; it does put the brakes on falling home values due to skyrocketing and potentially inaccurate flood insurance rates.

NAR Comments on Qualified Mortgage Rule

By Vijay Yadlapati, Charles Dawson

On Jan. 14, 2014, NAR submitted a statement for the record to the U.S. House Financial Services Subcommittee on Financial Institutions and Consumer Credit hearing on "How Prospective and Current Homeowners will be Harmed by the CFPB's Qualified Mortgage Rule." The Dodd-Frank Wall Street Reform Act established the Qualified Mortgage (QM) as the primary means for mortgage lenders to satisfy its "ability to repay" requirements.

In the statement, NAR pointed out that it has been generally supportive of the Consumer Financial Protection Bureau's (CFPB) efforts to craft a QM rule that is not unduly restrictive and provides a safe harbor for lenders making QM loans. NAR has had policy supporting the idea that lenders measure a consumer's ability to repay a loan. For this reason NAR strongly supports the Ability to Repay (ATR) rule in general but has significant concerns with some elements of the QM portion of the rule, which include the 3 percent cap on points and fees as well as the 43 percent Debt-to-Income (DTI) limit. NAR also believes it is critical for policymakers to construct a QRM rule that mirrors the newly implemented QM rule.

NAR Statement

NAR Seeking Members Contacted by Patent Trolls

By Melanie Wyne, Kevin Donnelly

Have you received a demand letter from a "patent troll"? We want to hear from you.

Companies, often referred to as patent trolls, are buying up broad patents and using them to threaten small businesses and individuals, including REALTORS®. Some of the recent examples of patent troll demands that our members have received involved a patent related to websites that allow users to locate, search for, and transmit property information to others and a patent related to use of scanner copier machines.

NAR is working on several fronts to fix loopholes in the patent litigation system that allow patent trolls to continue to threaten unsuspecting businesses and end users in this way. BUT WE NEED YOUR HELP. If you have received a demand letter seeking a licensing fee for a technology or process used in your business please contact us. We would like to learn from you how widespread this issue is for the real estate industry in order to most effectively assist in finding a solution. Even if you received a letter and paid a licensing fee, we'd like to hear from you.

Please send me an email: mwyne@realtors.org or Kjohnson@realtors.org and we'll get in touch with you. For more information on the importance of patent litigation reform to the real estate industry and NAR's position, visit:

NAR's Patent Litigation Reform page

FHA Condo Insurance Requirement Waiver

By Sarah C. Young, Megan Booth, Kevin Donnelly

The Federal Housing Administration (FHA) has temporarily waived the blanket hazard, flood, liability and other insurance requirements in Mortgagee Letter 2011-22 for Manufactured Housing, Detached and Common Interest Housing Projects. The waiver notice, which is posted on FHA's Condominium Mortgage insurance page, details the projects eligible for the waiver and FHA's findings and determinations. The waiver is being granted to allow owners in these projects to obtain individual insurance policies for their units as required by state or local condominium laws and FHA requirements. FHA recognizes that requiring a blanket insurance policy for these projects can be impractical and cost prohibitive. NAR continues to work with FHA on condo policies to ease restrictions on condo sales and purchases.

Mortgagee Letter 2011-22

FHA's Condominium Mortgage insurance page

(As of December 12, 2013)

NAR Government Affairs Update

National Legislation Impacting Real Estate

Representatives from HCAR, MAR and NAR meet with our U.S. Senators and Representatives on a regular basis to communicate the issues critical to REALTORS®, our businesses, communities and the consumers we represent.

Make Your Voice Heard - A million voices together can't go wrong. Visit the NAR Action Center today and be heard on the issues you care about most!



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