Biden introduces plan to increase taxes on Real Estate investors
Presidential candidate Joe Biden plans is announcing a $775 Billion dollar plan to boost Child and Elderly care. It’s a decade long plan that will be paid for by reducing or eliminating 1031 tax breaks for real estate investors making more than 400k a year.
Quote from Bloomberg: “a senior campaign official said a Biden administration would take aim at so-called like-kind exchanges, which allow investors to defer paying taxes on the sale of real estate if the capital gains are reinvested in another property.”
According to The NY Times: “Biden’s campaign said the programs, some of which would be operated with state and local officials, would be paid for by rolling back some taxes on real estate investors with incomes over $400,000, as well as by increasing tax enforcement on the wealthy.”
How will this potential new policy impact you?
My first thought, put more emphasis on Cost Segregation Studies to reduce tax liability in a world without/reduced 1031’s
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Originally posted by @Tyler Baldwin:Presidential candidate Joe Biden plans is announcing a $775 Billion dollar plan to boost Child and Elderly care. It’s a decade long plan that will be paid for by reducing or eliminating 1031 tax breaks for real estate investors making more than 400k a year.
Quote from Bloomberg: “a senior campaign official said a Biden administration would take aim at so-called like-kind exchanges, which allow investors to defer paying taxes on the sale of real estate if the capital gains are reinvested in another property.”
According to The NY Times: “Biden’s campaign said the programs, some of which would be operated with state and local officials, would be paid for by rolling back some taxes on real estate investors with incomes over $400,000, as well as by increasing tax enforcement on the wealthy.”
How will this potential new policy impact you?
My first thought, put more emphasis on Cost Segregation Studies to reduce tax liability in a world without/reduced 1031’s
Regardless of who is in office we will likely see property tax increases as well as tax incentives going away. Federal, State and Local governments have some serious holes to plug.
@Tyler Baldwin
This would affect an extremely small number of people. Only 1% of the people even make $400k a year or more, and who knows what percentage do 1031 exchanges. So, how many people would this affect a year? A couple thousand?
There is positive sentiment in the US to increase taxes on the wealthy and provide more public infrastructure and services. This proposal looks in line with that.
Real Estate investors have very favorable tax laws. As the above poster pointed out it won't effect most (not me). I'm sure the ones it will impact will have a smart solution to keep making money investing in real estate. In these times, I'm regularly grateful that most of my retirement income comes from rentals - good tenants, good properties and great cash flow = a relatively stress free way to make money and own an asset that is likely to keep appreciating.
child/elderly care by taxing people making over 400k? Sounds great. Thanks for bringing to our attention
My first thought is, would Biden even have the power to due this or is it just a campaign promise that would have to be put to the house and then senate and then likely changed or shot down along the way. As real estate investors, we know the tax man will come for us at some point. Hope to have another 5 to 10 years of similar laws and no drastic changes.
Does the $400K include income imputed from the 1031 transaction itself? If so, it will affect a lot of people, especially on the coasts.
Dan Veld: This would be a change to the tax law requiring Congress and signing by the President to go into law. There will be lots of negotiation on the final terms and if the Democrats don't win the Senate as well as House, there will almost certainly be no change to the law.
Ok Ed, I figured something like that, a lot of promises will be made in the next months but reality could be different
Narrowly, it's never great when people have less incentive to sell with the fear of facing capital gains. Many of the markets I work in are Opportunity Zones, making them more attractive for investment if 1031 bites the dust. I don't believe this change will seriously affect the residential markets, but commercial investors may feel a pinch.
I'm more interested in Biden's "Build Back Better" ideas and the investments in our communities that will make them more sustainable. Overall these capital investments will create jobs and improve our built environment. These ideas will power our country for decades and I hope that they com to fruition.
I believe the same thing will happen that always happens when government thinks they've come up with a good idea for taking money from rich people- the rich people will make different decisions and avoid the tax. It's laughable to me when the government says, "If we implement this tax, we'll raise this amount of money." It never works out as planned, because wealthy people tend to be smart with their money and they figure out how to avoid the new tax. I'm not saying this new tax won't increase tax revenues at all, because it will, but it won't come close to what the government advertises. Also, the decrease in transactions for like-kind properties will decrease income for all parties involved in these transactions which will decrease tax revenues for the government.
@Tyler Baldwin
It is easy to come up with $400k when you sell properties for 40+ years especially if you use 1031 exchanges and expect that to be your nest egg.
When the government raises taxes they go where the money is. To the businesses that pay employees and hit every bodies pay check, to the real estate owners and jack up property taxes, to bank accounts and brokerage accounts and increase tax on gains.
Then they spend it on infrastructure, social programs, defense contracts, foreign aid, etc which is all fine until the contracts are jacked up in price and go to cronies for kickbacks to the politicians families. Thus the corruption and building of wealth on the people’s backs.
There is an old saying, the more you tax something, the less you get. Assuming this has a snow ball in hell's chance of ever becoming law, investors will find a way around it. You would definitely see more refi's, pulling cash out and reinvesting, or more seller financing on deals with payments spread out over 10 years to minimize the tax hit. I am sure tax attorneys and CPA's will find other creative solutions.
@Tyler Baldwin I, for one, don’t like it. I would fall into the category of paying those taxes. It is frustrating and non-incentivizing to continue to work harder to pay more to the government. In 2022, I plan on doing 30-50 1031 exchanges into bigger properties and if this tax incentive were to go away, I would end up paying 100k to 200k in taxes just to move my money from point A to point B. Imagine the government saying that every time you take money out of your bank account to put it into a different bank account you need to pay them 15% of of it.
Thanks for re-posting this. I didn't see the 400k limit listed anywhere in the other thread:
https://www.biggerpockets.com/...
and then Bigger Pockets locked the thread and sent out an email to all their users about it. There are a lot of people freaking out on that thread about a thing that will not affect them, and they are probably supportive of, if they knew this detail. I am a fan of Bigger Pockets, but I feel let down by this experience.
If you are still against it. The fact is the richest 1%(those making over 400k a year) have a lower tax rate then everyone else. They didn't earn their money by themselves, they leveraged the infrastructure of the laws and government to obtain this money.
Another fact is wealth disparity is at an all time high. We simply cannot continue to live this way.
Originally posted by @Anthony Wick:@Tyler Baldwin
This would affect an extremely small number of people. Only 1% of the people even make $400k a year or more, and who knows what percentage do 1031 exchanges. So, how many people would this affect a year? A couple thousand?
Depends on how you treat CapGains in that calculation. I think it'd affect a LOT of sellers with >$400K of appreciation
Originally posted by @Dennis Cosgrave:You would definitely see more refi's, pulling cash out and reinvesting, or more seller financing on deals with payments spread out over 10 years to minimize the tax hit.
You'd also see a LOT less transactions without 1031 deferrals.
I didn’t notice it in this thread but in some of the articles published on this topic they also mention plans to limit deductions to income tax generated from passive losses (depreciation). If that happens cost segregation won’t be the loophole.
@Shiloh Lundahl, agreed that taxing money movement is foolish. As others have said, people will either a) not sell or b) find other creative ways to avoid it.
Two things are certain: 1) politicians ALWAYS leave "loopholes" for their friends and buddies so they aren't affected, so you just have to find those loopholes and take advantage of them. 2) People who make more than $400K aren't stupid; they'll figure out a way to minimize/avoid this.
Not only will the economy suffer from fewer transactions, but also all of the ancillary service providers who take part will see less business. Real estate agents, banks, title companies, REI attorneys, CPAs, etc will all have less business, thus lower overall tax revenues from those supporting services.
It's basically a shill promising freebies during the election cycle which happens all the time. "Vote for me and I'll give you X". Buying votes without actually handing over wads of cash at the poll. The author of Ecclesiastes was correct: "There is nothing new under the sun."
@Steve Morrison
I’m still not sure there’s that many people with $400k appreciation either. $400k is a lot of money. We aren’t talking $400k in properties or net worth. We are talking $400k in income in any given year. Top 1% of earners in the nation.
@AnthonyWick:
You can get to $400K in taxable income quite easily even if you are middle class. Salary $125K, spouse $75K. Taxable interest/dividends/capital gains from brokerage $15K and sale of property with $185K capital gain. You are at $400K and no Warren Buffet.
Originally posted by @Ed Jerum:Dan Veld: This would be a change to the tax law requiring Congress and signing by the President to go into law. There will be lots of negotiation on the final terms and if the Democrats don't win the Senate as well as House, there will almost certainly be no change to the law.
Even if Dems win both houses of Congress and the Presidency, there's no guarantee this goes through. The majority of Dems are centrist and just as interested in low taxes as the Republicans, and this is the type of fringe tax issue that could easily get shot down in committee while 99.99% of voters never had a clue that it was even discussed. All you need is a few big dollar real estate investors targeting committee members with donations and it's basically done. That's our system for you!
@Shiloh Lundahl, wouldn’t it be more like if the government said that every time you sell one portfolio of stocks to buy another portfolio of stocks, you’d have to pay 15% on the profits? Which is the case, by the way.
Originally posted by @Tyler Baldwin:Presidential candidate Joe Biden plans is announcing a $775 Billion dollar plan to boost Child and Elderly care. It’s a decade long plan that will be paid for by reducing or eliminating 1031 tax breaks for real estate investors making more than 400k a year.
Quote from Bloomberg: “a senior campaign official said a Biden administration would take aim at so-called like-kind exchanges, which allow investors to defer paying taxes on the sale of real estate if the capital gains are reinvested in another property.”
According to The NY Times: “Biden’s campaign said the programs, some of which would be operated with state and local officials, would be paid for by rolling back some taxes on real estate investors with incomes over $400,000, as well as by increasing tax enforcement on the wealthy.”
How will this potential new policy impact you?
My first thought, put more emphasis on Cost Segregation Studies to reduce tax liability in a world without/reduced 1031’s
i also saw reference about eliminating your ability to lower your income tax with real estate losses. what does this mean? everything - mortgage interest, repairs, etc.? just depreciation?
Too many people think that tax breaks are loopholes for a select few. I'd like to think of them as incentives for taking a calculated risk with your capital.
Don't want to take any risks? Then your stagnant cash will di-sincentivize you as it slowly (or quickly) depreciates.
Originally posted by @Darius Ogloza:Does the $400K include income imputed from the 1031 transaction itself? If so, it will affect a lot of people, especially on the coasts.
Is the 1031 being eliminated for everyone? Or just if you make over 400k (which that part isnt fully determined yet)?