Here’s AAPL’s position on IRS code, section 199A.

The Tax Cuts and Jobs Act enacted Section 199A of the Internal Revenue Code in 2017.

This legislation created a 20% tax deduction for qualified business income for pass-through companies (e.g., limited liability companies, subchapter S corporations, and limited partnerships). It also authorized a 20% deduction for qualified REIT dividends.

This specific tax deduction greatly impacted not only small business owners nationwide but also the private lending industry.

Real estate private lenders offer financing opportunities to real estate developers, real estate investors, flippers, and wholesale purchasers. These financing opportunities are usually bridge loans, construction loans, and perm loans for rental homes.

Through these types of financing products, the private lending industry has created millions of units of housing during the worst housing shortage in decades. The private lending industry is funded by a combination of institutional capital and Main Street investors, and more than 80% of the private lending industry are small to medium businesses.

Section 199A’s Importance

Section 199A has significantly boosted growth in the private lending industry, which directly increases housing stock, affordable housing, and rental opportunities.

It reduced the tax liabilities for the small business owners who owned and operated mortgage origination businesses that originate, fund, and service these types of loans. Section 199A allows them to grow their operations and reinvest into expansion, thereby directly creating even more housing stock, affordable housing, and rental opportunities.

In addition, Section 199A further incentivized Main Street and Wall Street investments into mortgage REITs, mortgage funds, and other finance companies that originate, fund, purchase, sell, service, and portfolio these types of loans. This directly expands origination capabilities across the country, also creating more housing stock, affordable housing, and rental opportunities.

Since enactment of Section 199A, Limited Partner (LP) investment into the private lending space has increased by more than 35%. Institutional investing into the private lending space has increased by more than 50%. This translates into significantly more loan production.

In 2020 alone, the private lending industry generated more than $100 billion in new loans for fix-and-flips, rental home investments, bridge loans, and new construction for 1-4 family residential and multifamily properties. The result is that new homes are being built, aging inventory is being rejuvenated, and more homes are being put on the market.

AAPL Official Position

For these reasons, the American Association of Private Lenders (AAPL) wholeheartedly supports Section 199A. Further, AAPL endorses making Section 199A permanent.

Here’s why:

  1. AAPL’s membership is comprised of small to medium businesses, most with fewer than 50 employees. Small businesses are the heart of the American economy.
  2. Not only does this law support small businesses, it supports an industry that is directly responsible for creating renewed housing inventory, more affordable housing, and more rental home and apartment inventory.