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
I think we all have to face the fact that no matter who is our next set of elected officials, taxes are going up. There is no way to support this ballooning deficit, without some increased revenue and decreased spending. All we can hope is that the increases taxes fall outside of real estate.
@Andrew Hogan bingo! Thank you for posting!
@Jonathan Schwartz that’s right Jon! Keep the govmit out our pocket!
@Steve Morris
Sir, you sound too sane and logical to be in Portland. Hope you’re hanging tough!
@Mengdi S. Yes it is totally crazy. Don’t trust the govmit
If what you say is true and it may very well be true then it won’t provide much income at all to provide for the spending increase. As always, they Now have a paragraph to change and include the rest of the real estate owners.
Politicians are good at parsing out small groups and getting the rest of the people not affected, to vote against the small group. Ultimately you will be paying if we keep electing career politicians instead of civil servants.
@Robert Tinker well said sir’ thank you for posting
@Joe Splitrock stop making sooo much sense!
Thank you for posting!
Originally posted by @Steve Mandelbaum:There is no way to support this ballooning deficit, without some increased revenue and decreased spending. All we can hope is that the increases taxes fall outside of real estate.
There's 3) issue debt. As long as we're the reserve currency for the world, shouldn't be an issue.
However, politicians love spending money no matter how large the deficit.
Giving them more tax revenue would make it worse since they'll think they have that much more to spend.
Unfortunately, the only leash we have on politicians in the form of taxes we don't want to pay.
Originally posted by @Shiloh Lundahl:@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.
Shiloh, I totally agree with everything you're saying, but you're also demonstrating exactly the self-righteousness I abhor.
Everything you said above could also be said about the sales taxes on your car. Driving your car stimulates the economy and creates jobs for everyone; why, then, should you pay more tax at the pump?
As far as raising government revenue goes, eliminating the 1031 exchange won't hurt the poor and middle class nearly as much as reducing social benefits or raising taxes on earned income. You won't like it and I won't like it, but it's absurd of you to think you're serving our country by taking advantage of a tax loophole.
And a side note about the government's value system not aligning with yours: we live in a democracy, so don't give me that baloney. Sometimes your party is in power, sometimes not, but if you want a government that is always in sync with your wishes, go start a dictatorship somewhere.
Originally posted by @Shiloh Lundahl: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.
Shiloh, not to totally dump on you, but I didn't read the above paragraph closely enough before replying to you.
Are you saying that without a 1031 exchange, you'd never buy another property? I mean, that's what you're saying: "...I will always bring it into my account and I am not pressure to invest it and stimulate the economy." How are you going to make a living if the 1031 exchange loophole is revoked?
@Jason Collins you should get 6 trillion up votes best comment in the whole thread! Case closed!
@Jon Schwartz it looks like you drank the Kool-Aid. I think, with more time and experience your views may adjust a little.
A little about my back ground may be of help to you. I am a social worker and I have worked in many sectors of public health and many social programs. I believe in helping the poor and the those in need. I have done a lot of that first hand. I also recognize what can be helpful in leaving poverty. A great book if you are interested in understanding the different mindsets of the classes is a book by Ruby Payne called A Framework for Understanding Poverty. One of my top ten books on understanding mindsets.
As far as the 1031 exchange and buying or not buying a property is concerned, when someone decides to do a 1031 exchange, they have a certain time period to identify and purchase a property without triggering the taxable event. So they are under pressure to buy within that timeframe. Most people would rather shop around without the pressure of buying a property within that time frame. So if you take away the benefit of deferring the taxes with the exchange, people will either keep the property forever until they die or they will take the money out and put it into their account and pay the tax and then buy something again at a later date when they find something they like. That could be in a week or in a year or in ten years or never. There is no pressure to move forward. Kind of like the lack of pressure to provide good customer service when your a government employee working at the DMV (Department of Motor Vehicles).
Originally posted by @Shiloh Lundahl:@Jon Schwartz it looks like you drank the Kool-Aid. I think, with more time and experience your views may adjust a little.
A little about my back ground may be of help to you. I am a social worker and I have worked in many sectors of public health and many social programs. I believe in helping the poor and the those in need. I have done a lot of that first hand. I also recognize what can be helpful in leaving poverty. A great book if you are interested in understanding the different mindsets of the classes is a book by Ruby Payne called A Framework for Understanding Poverty. One of my top ten books on understanding mindsets.
As far as the 1031 exchange and buying or not buying a property is concerned, when someone decides to do a 1031 exchange, they have a certain time period to identify and purchase a property without triggering the taxable event. So they are under pressure to buy within that timeframe. Most people would rather shop around without the pressure of buying a property within that time frame. So if you take away the benefit of deferring the taxes with the exchange, people will either keep the property forever until they die or they will take the money out and put it into their account and pay the tax and then buy something again at a later date when they find something they like. That could be in a week or in a year or in ten years or never. There is no pressure to move forward. Kind of like the lack of pressure to provide good customer service when your a government employee working at the DMV (Department of Motor Vehicles).
Shiloh, a quick glance around the internet has led me to conclude that I will not be reading Ruby Payne's self-published book. I commend you for your social work, although your notion of "the different mindsets of the classes" is worrying.
Kool-Aid? I'm more of a Gatorade dude myself. I don't think I need more time and experience -- I'm *agreeing* with you that 1031 exchanges are awesome for real-estate investors and that it'll blow it was lose them. I just don't think there's anything righteous about them or any other tax loophole.
@Erik Whiting
Well said sir. Well said.
Originally posted by @Steve Morris: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.
But Steve, look at the data. You didnt ask about migration. You asked whether high taxes correlate to higher incomes. And clearly they do. Now when you don't like the fact that the data contradicts your philosophy you change the topic. Thats not a valid way to argue. Another point, during the biggest boom time for the US, the 50s and 60s, the tax rates were significantly higher and we grew the biggest middle class the world has ever seen. There is tons of data from the US and around the world (example Germany, Sweden etc) where high taxes correlate with strong middle class, smaller wealth disparity and higher standard of living.
I should add though that taxes are not enough. If we simply throw the money away and waste it on wars and other useless things, it won't help at all. Progressive taxes coupled with policies that actively support the middle class (healthcare, education, infrastructure etc) is what creates a stable society. We used to know this before Reagan came along with the supply side hoax and changed the trajectory of the US economy.
@Anish Tolia
"Supply side hoax?" LOL! In Germany and Sweden EVERYONE pays high taxes including the low income segment. (VAT, etc) Until recently, they have also had a very strict immigration policy which the United States couldn't even come close to.
U.S. tax code actually rewards poverty by giving tax CREDITS for being low income. Add up the benefits, TANF, SNAP, EBT, MediCAID (which is free cadillac healthcare especially in BLUE states such as NY, compared to MediCARE which covers very little and has copays), WIC, HEAP, Section 8 and a myriad of other programs/assistance and a single mother of 3 makes an equivalent of $60-70K a year tax free.
No incentive to participate in the American Dream. No incentive to see that your CHILDREN have a decent education; generation after generation have that "safety net."
And the costs to administrate all these programs? Astronomical. Since when has government been a better adminstrator of funds than the American worker as a whole?
Never.
@Jon Schwartz So let me see if I understand. I suggest a book that maybe helpful to you in expanding your understanding of poverty and how to get out of poverty. You say you looked it up online and are not interested. I say with more time and experience you may adjust your views a little. You say you don’t think you need more time or experience.
It seems like you have it all figured out.
There are many people who come onto BiggerPockets to learn from those who are more experienced in real estate investing and overall financial success. And then there are many people who are very successful in business and real estate investing that come onto BiggerPockets to contribute and share their experience and ideas with others so that others can learn and follow similar paths to success. I believe I mistakenly thought you were in the category of someone who was looking to learn from experienced and successful investors. But now I realize that you are in that category of the successful and experienced and are here to benefit the group with your contributions. So I thank you for being a contributor.
@Tyler Baldwin I’m assuming this is taxable income, correct? If so, with the write offs that a lot of real estate investors have, I’d imagine most on here will be WELL under that $400,000 threshold.
@Anthony Wick your figures of 1% of people making over 400k are wrong, not sure where that number came from. The vast majority of investors I know use a 1031 exchange, deferring millions in tax liabilities, therefore generating more liquid capital to reinvest. In others continuing to stimulate the real estate markets. Rather than just being a contrarian to anything “Trump” it would be best to explain the benefits of such changes to the laws in place, where that money would go (back into government hands) and detail exactly how that structure more advantageous to Americans. Blank statements lose elections and in turn ignorance loses money.
@shiloh
the twitterbots have spoken on the book and pronounced it suitable for a book burning (akin to statue toppling)
@Derrick Dill yeah, still sounds great after 10 election cycles of promises to improve child and elderly care with little to no results, because politicians are the greats con-artist in modern history. Btw as a parent, I know child care isn’t cheap, however, as a parent I know government funded child care isn’t what campaigns promise it will be. Free market capitalism is how and why BP and other means of RE investment has even been allowed to develop and flourish.. please enlighten us all with any examples of Big government programs that have allowed the same opportunities of enrichment, personal developement, and prosperity as the freedoms of capitalism has.
@Anthony Wick I understand the concept of diminishing returns. And if you see that as the way that someone gets into the 1% and that they have to continue to do that forever, then I too would be in agreement with you that I wouldn’t want to be on that hamster wheel running as hard and as long as I could forever.
You bring up the FIRE movement. I have really good friends in the FIRE movement. But my biggest problem with the FIRE movement is that it is very self-focused on taking care of yourself and making sure you and your own are okay. It doesn’t seem to have an emphasis on extended family or the community as much (except for donating your time which you will have a lot of which can be helpful to the community and others). But the majority of people in the FIRE movement don’t have employees or other people they are responsible for to keep food on their families‘ tables. They are responsible to keep food on their own table.
I want my influence to be a support that goes far beyond my own table. And in order to do this I need to be able to have the means to do this. And in order to really have the means to do this without killing myself by overworking myself, I need to learn how to work with others to leverage resources such as other people’s time, talents, and money, to create more of an influence than I can on my own.
The answer isn’t to just work longer and harder. The answer is to develop better systems that will allow you to increase your means while continuing to spend time with your loved one and develop your talents and hobbies. It reminds me of the Jim Rohn quote that basically says “You can get the things you want in life by helping enough people get what they want.” And I believe that’s true.
I would take the 1031 elimination. What will reduce investment values - for those living in my market of Chicago - are substantial real estate tax increases.
Originally posted by @Account Closed:Originally posted by @Steve Morris:
But Steve, look at the data. You didnt ask about migration. You asked whether high taxes correlate to higher incomes. And clearly they do. Now when you don't like the fact that the data contradicts your philosophy you change the topic. Thats not a valid way to argue. Another point, during the biggest boom time for the US, the 50s and 60s, the tax rates were significantly higher and we grew the biggest middle class the world has ever seen. There is tons of data from the US and around the world (example Germany, Sweden etc) where high taxes correlate with strong middle class, smaller wealth disparity and higher standard of living.I should add though that taxes are not enough. If we simply throw the money away and waste it on wars and other useless things, it won't help at all. Progressive taxes coupled with policies that actively support the middle class (healthcare, education, infrastructure etc) is what creates a stable society. We used to know this before Reagan came along with the supply side hoax and changed the trajectory of the US economy.
In reality, high taxes follow high income is what I should've said. Maybe a better measure is some state that was low on average income rising via tax increases is how I should've said it.
I have no clue on taxes in Singapore, but I know (from working there 40 years ago) import taxes were god-awful and I thought they had sort of a compelled individual saving plan for retirement (you have defined contributions and we have defined benefits for Social Security). Biggest issue is how you fund medical care since that's probably THE biggest excuse for taxes (maybe after schools).
As far as deficits go, Cali has every kind of tax and they are ALWAYS short of funds for stuff like schools. So I think saying that raising taxes will fix deficits is a canard based on behaviors.
Last balanced budget we had was under Clinton and taxes were historically low.
Sorry, for the word salad, but blog posts don't allow me to organize my thoughts well.