NRCA Issues Statement Regarding Proposed Legislation to Reform Cost Recovery Provisions

On Nov. 21, Senate Finance Chairman Max Baucus (D-Mont.) released a discussion draft of proposed legislation to reform the cost recovery provisions of the federal tax code. This draft would repeal the current depreciation system, referred to as Modified Accelerated Cost Recovery System, and replace it with a new system that pools assets into separate categories. The draft also instructs the Congressional Budget Office (CBO) to analyze the economic depreciation rates of tangible assets. The Department of Treasury then is authorized to review CBO's findings and determine whether assets should be reassigned depreciation schedules or whether new ones should be created.

Under the Baucus proposal, these depreciation schedule changes would generate nearly $700 million in revenue for the government during the next decade, which would be used to offset cutting the 35 percent corporate income tax rate. Unfortunately, Baucus proposed cutting tax rates only for C corporations and not for pass-through businesses that pay income taxes at the individual rate.

NRCA supports comprehensive tax reform that boosts economic growth by substantially lowering individual and corporate tax rates. Roughly 75 percent of NRCA members are S corporations, LLCs and other pass-through entities, so cutting taxes for entrepreneurs that file at the individual rates, as well as for large corporations, is essential for the roofing industry. Therefore, NRCA is disappointed the discussion draft does not include reductions in individual income tax rates.

NRCA also supports reforming the depreciation schedule for commercial roofs in tax reform. The current 39-year depreciation schedule is an obstacle to economic growth and is more than double the 17-year average life cycle of a commercial roof. Baucus has proposed extending the depreciation schedule for real property, including commercial roofs, to 43 years in his discussion draft. This does nothing to remove the incentive for building owners to make only piecemeal repairs to a failing roof rather than employing a full retrofit. Extending the depreciation schedule further complicates business owners' tax decisions; does nothing to promote economic growth; and fails to advance greater energy efficiency within the commercial building sector. Baucus said his goal is to "establish a system of cost recovery that better approximates the decline in the economic value of an asset," but 43 years to depreciate a commercial roof does not accurately represent its economic value.

NRCA is pleased to see that Baucus included higher Section 179 expensing limits in his discussion draft. The proposal permanently would increase the expensing limits to $1 million and be indexed for inflation.

Baucus has requested comments regarding the discussion draft be submitted by Jan. 17, 2014. NRCA will submit comments that address its concerns regarding the proposed reforms to the tax code in a comprehensive manner. NRCA remains committed to working with lawmakers to pass pro-growth tax policies that benefit the roofing industry and the economy. For more information, please contact NRCA's Washington, D.C., office at (800) 338-5765.

(From NRCA)

Trenton H. Cotney

Florida Bar Certified Construction Lawyer

Trent Cotney, P.A.

1211 N Franklin St

Tampa, FL 33602

www.trentcotney.com