Real estate investors said yesterday that the Treasury Department's proposed tax simplification plan is so sweeping that it will be days, and possibly weeks, before they will be able to sort out its ramifications for the housing industry.
Many industry officials expressed fear that, although Congress is unlikely to approve the tax plan as written, revenue-hungry legislators will seize on the parts of it that appear to generate the most new tax dollars.
"This isn't going to go under the table" when it gets to Capitol Hill, "it's going right back on the table," said Colleen M. Fisher of the National Apartment Association. "You can get large bucks" from some parts of it.
The changes in the treatment of depreciation and interest deductions may be very tempting, according to several sources. The proposed changes, details of which were announced Monday, are designed to reflect economic reality more accurately than does present law, and would significantly reduce annual write-offs for real estate investors, according to the Treasury.
Under the Treasury proposal, the current 18-year depreciation schedule would be scrapped in favor of one that would allow most real estate owners to write off 3 percent of their cost each year, plus an inflation allowance.
Interest payment deductions also would have to be adjusted for inflation because, under Treasury's reasoning, these payments are made with dollars that have become less valuable, resulting in an untaxed gain for the taxpayer. Under the schedule published Monday, 45 percent of a taxpayer's interest payments -- assuming they otherwise qualified for deduction -- would be excluded if the inflation rate were 5 percent.
Jack Carlson, chief economist of the National Association of Realtors, said his calculations show that the depreciation change would knock 11 percent off the value of all the nation's existing depreciable real property -- a value decline he put at $330 billion. He characterized the Treasury package as "anti-investment and pro-consumption."
Others cautioned, however, that the long-run impact of the whole proposal on real estate investment is very hard to gauge. Investment decisions are relative; that is, investors seek the best return from among various choices, and to the extent that the package would adversely affect other choices, it would help real estate remain competitive.
The overall proposal "is so comprehensive and so changes the economic landscape that it would have a substantial impact," said Steven A. Wechsler of the National Realty Committee, which represents large developers and syndicators. "The question is the degree of its impact and its impact relative to other investments."
The complexity "makes it hard for anyone to intelligently comment at this point," he said in a comment heard from many others in the industry.
Among those who would comment, the principal concern was the possibility that it would provide a rationale for eliminating real estate preferences without any compensating benefits. Said one trade association official: "It's everything the Treasury's been after since 1976."
In addition, rental housing in general, and low-income housing in particular, would appear to suffer under the plan. Tax-exempt-bond financing, coupled with depreciation and other write-offs, often are the difference between profit and loss in the construction of rental housing.
Several industry sources said, however, that the results might not be all bad for owners of rental housing. While they agreed that there would very likely be a decline in resale prices in the near future, a construction halt ultimately would cause a shortage that would push up the value of existing properties.
"But who knows?" added one. "The possibilities and permutations are endless. Yes, scarcity drives up rents, and that's good for the owner -- but suppose the tenants get organized and get rent control. Then you've got a real mess."