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
For starters, I will be completely shocked if Biden gets elected. The democratic party missed the boat and should have found a more competent candidate. That being said, as with any tax changes, I will simply find every single loophole available to keep my reported income as low as possible. Should I need to make a sizable 1031 exchange and the tax environment sucks, I will just hold the property until death and avoid any taxable event prior to that. If I'm unable to avoid taxes, I'll just pay what I need to pay and move on. Also, I won't get into my opinions of people who don't plan for being old and don't take care of their own children because people don't like to hear discussions of personal accountability.
The government just passed $6 trillion in bipartisan spending over the last four months.
No amount of taxing the rich will ever pay for this plus the preexisting $20+ trillion deficit.
If US spending continues at this pace the country is on the road for bankruptcy/economic disaster no matter who is taxed.
@Darius Ogloza,
I agree, this will impact a lot of people. For a property owned for 10 plus years, you can easily have 300K in capital gains income. Added to a 100k regular income, you are now the tax target at 400k of income for that year.
Also, politicians have put a bullseye on the money they want to raise, so they are not stupid. If they aimed at this segment, they expect it to effect a lot of people, otherwise there will not be enough dollars gained to finance their plans.
@Jonathan Schwartz, that would be a good parallel if the stocks were in a self-directed ROTH acct, which is currently capital gains tax free as well.
This proposed bill is the equivalent of taking away the capital gains benefits of ROTH self-directed accts transactions. excha
@Josh C. You are 100% correct. This will impact a LOT of people, including anyone who has 1031 property in rapidly-appreciating markets (CA, Miami, NY, Texas) and the longer they have held the property, the more they will likely be hit. I am concerned and I don't usually make more than 100k per year, but when I exchange just 1 1031 property, I may have gains of 300k easily.
@Aaron Stafford you are 100% correct. Well said!
@Jason Merchey
What is the longest war in history? The "War on Poverty" starting on January 8, 1964.
Trillions of dollars later and legal immigrants to this country note that we have the most diverse yet richest "poor" people in the world.
@Tyler Baldwin
I wish they would come up with a plan to spend the money they already get every year. If they would quit fighting, remove the special interests, and actually perform as public servants, they would have plenty already. There's no doubt in my mind though, that Biden has "plans".
Clint
#3 Innovative Strategies Contributor
- Investor
- Greenville, SC
Originally posted by @Sean Spitzer:Originally posted by @Mike Dymski:Originally posted by @Frank Breetz: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.
There are many married couples who make over $400k combined...and have a 50+% income tax rate (37% federal + 8.55% FICA + state). And they damn sure worked for that $400k.
Mike - no doubt the folks making over $400k worked for that money and I certainly don't advocate giving it all to the government, but just some quick math based on effective tax rates versus the marginal rate of 37% you mentioned.....if a couple is married filing jointly and they had $400k in w2 income and took the standard deduction, their effective federal tax rate would "only" be 22.5%, roughly $90k federal taxes on $400k in income. Not $148,000 if you took 37% of $400k.
Again, not saying i'm for taxes, but I think many people overestimate what they think they pay vs what they actually pay.
You are reinforcing my point. A near 40% effective tax rate is very high (fed + fica + extra medicare + state)...along with the 50+% marginal rate above $400k. And this does not even include all the other taxes (sales, personal property, real property, hospitality...or all the taxes their employers pay on the same revenue stream).
@Tyler Baldwin basically what I got out of this is. They are going to start taxing the rich fr
Originally posted by @Steve Morris:Originally posted by @Account Closed:Id much rather sensible long term policies that help the middle class and create more stability.
Give me a high tax state in the USA that's raised taxes and created more for the middle class. Look at Cali if you want an example.
Illinois is a better example. Super high income tax, products and services sales tax, ski high property taxes.. the result?
A pension they cannot reply, crime, and even more squeezing of the poor and middle class.
High taxes, high regulation, not business friendly, federally mandated minimum wage, etc. are all things which harm and de-incentivise the poor and middle class.
Originally posted by @Steve Morris:Originally posted by @Account Closed:Id much rather sensible long term policies that help the middle class and create more stability.
Give me a high tax state in the USA that's raised taxes and created more for the middle class. Look at Cali if you want an example.
Actually its easy. The high tax states all have the highest median incomes.
@Jon Schwartz and @Account Closedwhen I get a gain in real estate, but I then reinvest that gain without using it, I obviously have the potential to create more money because I have more money at work for me. I have not realized a personal benefit from the gain because I never received the money. It went from one investment right into another. It incentivized me to keep buying to keep my money working because when it stops moving and returns to my account, that’s when I have to pay the gains. When my money is working, it stimulates the economy, it provides housing for others, and it provides an income for people I employ such as my assistant, my rehab crew, and those who maintain the property. I am incentivized to take on problems that I might otherwise not take on because I need it to keep moving. It also provides income to others involved in the transaction like the title company agents, appraisers, bankers, etc.
When I am incentivized to keep my money moving (after all, it is called currency for a reason) it benefits many people; who in turn benefit other people by spending the money that paid them. When I am taxed regardless of if I trade the equity from one property to another or just bring it back into my account, then I will always bring it into my account and I am not pressured to reinvest it and stimulate the economy. Then I am taxed on that money every time and I have less to reinvest and my money can go to the government so that they can spend it according to their value system which may very well not align with my value system.
@Anthony Wick I think you’re underestimating how many people make money in real estate
@Anthony Wick When you agree with these types of “tax the rich” because it won’t effect me sentiments shown in this thread (I know you didn’t necessarily agree with it and you were just wondering how many people would really be effected by it) it has a psychological effect on you. You tell your brain, “I don’t want to be in that group that gets taxed higher,” or you think “I hope to be in that group where I am taxed higher.” Realistically speaking, it tells the brain that you don’t want to be part of the wealthy group.
Actually its easy. The high tax states all have the highest median incomes.
Well, look at the list again. Among the high tax states a lot of them have net out-migration like MA, NY, Cali.
Problem is when you raise taxes, the guys that leave have jobs, skills and money. Leaving behind the people without jobs, skills, money which means you need to raise taxes more to support them.
@Shiloh Lundahl. Lol. What? I don't want to misquote you. Are you saying I am telling myself I don't want to make a lot of money? I'll tell you exactly what my brain is telling me. "If you are fortunate enough to be in the 1% of wealthiest individuals on earth, then you better realize that the 99% will hate you for whining about paying taxes." No, I don't want to pay more taxes. Why would I? Yes, I take full advantage of the tax code. I also believe if you're getting crushed in taxes, you are either; 1) A poor tax planner; 2) Have a terrible CPA; 3) Have more money than most human beings. While some of us are thinking about taking full advantage of the IRS tax code, there are many more individuals worried about paying rent and buying groceries this week.
BTW: I actually don't plan on working hard enough and long enough to be in the 1%. I'm probably about in the top 5% right now, and I am taking early retirement in 3 years. I plan on enjoying what about 95% of people will never have. And that's ok by me. Of course, if I get taxed a little more, I think I will survive.
So I searched to look for a link on this and read up
https://www.cnbc.com/2020/07/21/biden-to-unveil-775-billion-plan-to-fund-child-care-and-elder-care.html
It sounds great to me. Child Care is a major issue in this nation and in my opinion would help people property owners as it would allow tenants to have a more stable work and family environment.
Education is a major issue in this nation and in my opinion would help people property owners as it would allow tenants to have a more stable work and family environment.
Yet we've had lousy public schools for decades.
How many govt failures do you need to realize they're incompetent at fixing things?
@Anthony Wick let me give you an example of the psychology of what I am referring to using your words as an example.
I’ll add my word in italics to have them stand out from what you wrote. You stated “I also believe if you're getting crushed in taxes, you are either; 1) A poor tax planner;” (which is a bad thing) 2) Have a terrible CPA; (which is another bad thing) 3) Have more money than most human beings. (Which if your brain follows the pattern interprets it as the third bad thing in the chain).
It is like someone saying, I want to be wealthy, but not too wealthy. I want to be nice, but not too nice. I want to have friends, but not too many friends. Jim Rohn gave some wonderful seminars and in some of his seminars he talks about potential and he poses the question how tall does a tree grow? And then he answers it, “As tall as it possibly can.” then he asks how good of a husband should you be or a father or a friend? Answer - As good as you possibly can. He asks the question how successful should you be? The answer - as successful as you can possibly be (of course, in my opinion, work success should not take the place of or come before family success).
When you have all the knowledge and tools and abilities to get to the 1%, (Which I believe you do from your profile and the things you write) should you not go for it? Would you not be able to help your fellow man more by fulfilling your potential to your greatest earning capacity than you could if you chose not to? Is there something better or more noble staying small when your capacity is to live a life much larger?
The whole tax issue that this thread started out with is not that I wish to evade my responsibility to this country to pay taxes. In fact, I pay plenty in taxes. My issue is that I think it is a bad policy and I think it will slow growth and not create what the policy makers think it will create.
@Shiloh Lundahl. I believe in the Law of Diminishing Returns. Now, being a dad to the best of your ability doesn't really have diminishing returns. And you also do not retire from being a dad, or at least you shouldn't.
Yes, I could probably get to the 1% if I worked much harder and longer. But, at what cost? Well, the cost of my other interests in life of course. No, a person shouldn't necessarily work as hard as they can for as long as they can. Under your scenario and ideas, there is no such thing as the FIRE movement. Well, those people might also disagree with your assessment.
But you are right, we did kind of get a little off the main topic here. I will certainly admit that. But I stick by the fact that I am not worried about the 1% being taxed more. Yes, partially because if said idea passes Congress it most likely will not effect me, but also because it will not affect more than 99% of Americans. Raise your hand in this thread if you consistently make over $400,000 per year. Congratulations! That is unreal and awesome. Now, get the best CPA you can, make sure your paperwork is in order, take advantage of any tax laws you can, and don't feel guilty or cry about being rich.
And to those that do not make $400k a year.....that's ok. Just do the best that you can to reach the goals you've set for yourself.
@Anthony Wick
400k is the said limit for NOW Anthony, this is only the beginning....investors like ourselves will be targeted eventually and soon. Don’t kid yourself.
This isn’t about the rich paying their fair share, it’s about lessening the possibilities of someone becoming wealthy. Or in other words being more likely to be dependent of the state.
@Derrick Dill cmon man don’t kid yourself? You think they stop at 400k? Please, this is our govmit.
@Carl Fischer obviously you get it! Thanks for sharing your sound opinion.
@Frank Breetz
How much are you willing to give up Frank?