John Edgar For Colorado's 5th

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Title: Fair Housing Investment and Homeownership Act

Proposed by: John Edgar, Candidate for United States House of Representatives, Colorado’s 5th Congressional District

The Proposed Fair Housing Investment and Homeownership Act aims to promote fairness in housing markets and facilitate homeownership opportunities for working-class families. This proposed legislation seeks to ensure that real estate investors receive incentives only when contributing to the public good of housing provision, while also preventing speculative practices that hinder access to affordable housing, particularly for single-family dwellings.

Section 1: Definitions

– Real Estate Professional: An individual or entity engaged in the trade or business of real estate, as defined by the Internal Revenue Service (IRS), including but not limited to landlords, property managers, real estate developers, and investors.

– Residential Dwelling: Any property used or intended for use as a place of residence, including single-family homes, townhomes, condos.

Section 2: Tax Incentives for Fair Housing Practices

– Eligibility for tax incentives, including deductions for depreciation and interest expenses, shall be contingent upon real estate investors adhering to fair rent practices and contributing to the public good of housing provision, as determined by the local housing authority.

Section 3: Depreciation Deductions Tied to Occupancy

– Depreciation deductions shall be tied to occupancy rates, with prorated deductions for units rented for less than a full tax year.

Section 4: Limitation on Interest Expense Deductions

  1. Threshold for Reduction:

   – Interest expense deductions for real estate investors shall be subject to reduction if occupancy for the entire tax year falls below 75%.

  1. Application Timeline:

   – This reduction in interest expense deductions shall take effect in the full tax year following six months after the completion of new development or major renovation of the property, or three months after the purchase of an existing property receiving no renovation or renovations not deemed major as defined below.

   – Major renovation shall be defined as those that incur expenditures that exceed 25% of the original cost basis of the investment property.

  1. Calculation of Reduction:

– For properties undergoing major renovation: If occupancy for the entire tax year falls below 75%, interest expense deductions will be reduced to match the depreciation expense deduction. This reduction begins with the full tax year following six months after the major renovation is completed.

– For properties not undergoing major renovation: If occupancy for the entire tax year falls below 75%, interest expense deductions will be reduced to match the depreciation expense deduction. This reduction begins with the full tax year following three months after the purchase date.

  1. Treatment of Interest Expense Upon Relinquishment:

   – Upon relinquishing or selling the residential investment property, real estate investors can deduct the interest amounts paid during the investment period which were not taken in the year they were made due to deductibility limits resulting from low occupancy levels.

   – These interest amounts represent payments made while the property was held but were not deductible in the respective years due to occupancy-related deductibility limits.

Section 5: Restriction on 1031 Exchanges for Single-Family Properties

– Single-family residential properties shall not be eligible for 1031 exchanges involving both a 1031 seller and a 1031 buyer within 90 days of passage.

Section 6: Recapture of Depreciation in 1031 Exchanges

– Applicability: The regulations outlined in this section apply exclusively to single-family residential properties as defined above in Definitions.

– Upon relinquishing a property through a 1031 exchange, real estate investors shall be required to recapture the depreciation claimed during the ownership period of the relinquished property.

– The recapture of depreciation shall be treated as ordinary income for tax purposes and shall not be subject to the net investment income tax (NIIT).

– Payment of Tax: The tax on recaptured depreciation shall be due in the tax year of the 1031 exchange and shall be paid as ordinary income tax. Additionally, the recaptured depreciation shall be subject to self-employment tax, consistent with other forms of ordinary income.

– Exemption from Net Investment Income Tax: Recaptured depreciation shall be exempt from the net investment income tax, ensuring consistency with the treatment of other forms of ordinary income.

– Calculation of Recapture: The amount of depreciation recapture shall be determined based on the depreciation claimed during the ownership period of the relinquished property, in accordance with the Internal Revenue Service (IRS) guidelines.

– Reporting Requirements: Real estate investors engaging in a 1031 exchange shall be required to report the recapture of depreciation accurately on their tax returns, providing necessary documentation to support the calculation.

– Enforcement: The Internal Revenue Service (IRS) shall oversee the enforcement of the recapture of depreciation provision, ensuring compliance with tax obligations related to 1031 exchanges.

Section 7: Funding

– Allocate necessary funding from the federal budget to support the implementation and administration of this proposed legislation.

Section 8: Sunset Provision

– Review the effectiveness and impact of this proposed legislation five years after its enactment and consider adjustments or extensions as necessary.

Section 9: Severability

– If any provision of this Act is held invalid or unenforceable, the remaining provisions shall remain in full force and effect.

Section 10: Effective Date

– This proposed legislation shall take effect 12 months after passage.

 

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