Sen. Blunt Rochester's rental housing bill would replace 27.5-year depreciation with per-unit expensing

An apartment developer's depreciation write-off runs 27.5 years, and the Tax Foundation is pointing to a bill already filed in Congress to replace it. A business that buys equipment can generally deduct the cost immediately under an approach Congress made permanent, while a developer who builds rental housing must spread deductions across the 27.5-year schedule, which the think tank calculates drives their present value down to roughly 50 cents on the dollar. The consequence, in its account, is tax effectively paid on income that doesn't exist, projects that would have penciled never getting off the page, and a smaller housing stock.

Analysts at the American Enterprise Institute and the Center for American Progress agree the country is short millions of homes, the Tax Foundation notes, which is the shortage behind the proposal it endorses. The Rental Housing Investment Act, introduced by Sen. Lisa Blunt Rochester (D-DE) in March with a bipartisan House companion in May, would let developers of new rental housing — buildings with two or more units — deduct up to $150,000 per unit immediately rather than depreciating the cost over 27.5 years, with a $250,000 cap for projects that clear affordability tests borrowed from the Low-Income Housing Tax Credit.

For an advisor whose client file includes a multifamily sponsor, the useful work sits in the two numbers rather than the argument. At the base cap, a 100-unit building would throw off $15 million of first-year deductions instead of a decades-long tail, and the affordability tier would add another $100,000 per unit on top of that. Whether a given project clears the LIHTC-style test is a design question settled long before the tax return, which is why the tiering belongs in the conversation while a site plan is still fluid.

The Tax Foundation's own comparison is with the menu of alternatives: first-time homebuyer credits, tax-preferred home purchase accounts, and rental assistance all help households pay for housing whether the unit is new or old. Expensing, it argues, directs nearly every dollar of forgone revenue at new units and buys more construction per dollar than a corporate rate cut because the benefit reaches only new capital.

The think tank's case for expensing is not settled fiscal policy, and it rests on an assumption an advisor should name out loud for a client: that the deduction is worth roughly half its face amount today because of the delay. Discount rates, entity structure, and whether the client is a developer or an owner of stabilized product all move that calculation, and none of them are addressed in the proposal.

Nothing has been enacted, and the 27.5-year schedule governs any building placed in service now, so a client weighing a start this year is under current law regardless of what happens to the bill. The per-unit cap levels are the detail to watch, because a single number is what separates a marginally viable project from one that never gets financed.