The House bill provides that with respect to sales of depreciable real estate at a gain after July 24, 1969, accelerated depreciation taken after July 24, 1969, in excess of straight line depreciation will be recaptured as ordinary income to the extent of such gain. Thus, the percentage reduction under existing law in the amount recaptured, based on the period the asset has been held, would be eliminated. Although more favorable depreciation is provided under the House bill for new residential housing than for other buildings, no difference is provided under the recapture rule. It appears that application of the same recapture rule tends to reduce materially the stimuli to new residential housing intended by the House bill. Treasury recommends that there be a percentage reduction in the amount of excess depreciation recaptured with respect to sales of new residential housing in the hands of the original owner. The percentage reduction, however, should be stretched out over a substantially longer period than that provided in existing law. The full excess of accelerated S - 111 over straight line depreciation should be recaptured with respect to sales within the first ten years, at which time the percentage reduction would begin at the rate of one percent per month. A sale after the fourth month of the nineteenth year of the taxpayer's holding period would thus result in no recapture. Treasury recommends further that the recapture rule of existing law be retained without change for certain Federallyassisted projects under the so-called FHA 221 (d) (3) and FHA 236 programs. investors of 6 percent, this low rate of return having been based on the existing favorable tax treatment. It is inappropriate to change this treatment unless and until Congress acts to increase the allowable return. These programs provide a limited return to The revised recapture rules of section 1250 would apply under the House bill to all depreciation attributable to periods after July 25, 1969. It is suggested that the effective date be changed to apply to depreciation taken after December 31, 1969. This would provide a simpler transition rule comparable to the effective date provision used when section 1250 was first enacted. The House bill provides that with respect to sales of depreciable real estate at a gain after July 24, 1969, accelerated depreciation taken after July 24, 1969, in excess of straight line depreciation will be recaptured as ordinary income to the extent of such gain. Thus, the percentage reduction under existing law in the amount recaptured, based on the period the asset has been held, would be eliminated. Although more favorable depreciation is provided under the House bill for new residential housing than for other buildings, no difference is provided under the recapture rule. It appears that application of the same recapture rule tends to reduce materially the stimuli to new residential housing intended by the House bill. Treasury recommends that there be a percentage reduction in the amount of excess depreciation recaptured with respect to sales of new residential housing in the hands of the original owner. The percentage reduction, however, should be stretched out over a substantially longer period than that provided in existing law. The full excess of accelerated 111 over straight line depreciation should be recaptured with respect to sales within the first ten years, at which time the percentage reduction would begin at the rate of one percent per month. A sale after the fourth month of the nineteenth year of the taxpayer's holding period would thus result in no recapture. Treasury recommends further that the recapture rule of existing law be retained without change for certain Federallyassisted projects under the so-called FHA 221(d)(3) and FHA 236 programs. investors of 6 percent, this low rate of return having been based on the existing favorable tax treatment. It is inappropriate to change this treatment unless and until Congress acts to increase the allowable return. These programs provide a limited return to The revised recapture rules of section 1250 would apply under the House bill to all depreciation attributable to periods after July 25, 1969. It is suggested that the effective date be changed to apply to depreciation taken after December 31, 1969. This would provide a simpler transition rule comparable to the effective date provision used when section 1250 was first enacted. ww. The House bill reduces accelerated depreciation allow- ances for certain real estate investments. other than housing would be limited to an amount not in excess of the amount allowable under the 150 percent declining balance depreciation method. Housing was excepted from the limitation in order to foster our national housing goals. As drafted, however, the House bill would allow the benefits of 200 percent accelerated depreciation in respect to housing constructed both in the United States and in foreign countries. Treasury recommends that the 200 percent depreciation allowance be available only for housing constructed in the United States or its possessions. The same transition rule for existing commitments as is contained in proposed section 167(j)(3)(B) (which would be added by section 521(a) of the bill) would be provided. |