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Last updated on February 4th, 2021 at 05:08 pm
President-elect Joe Biden has proposed a number of policies that would affect taxes on individuals with income above $400,000, including raising individual income, capital gains, and payroll taxes.
By raising the corporate income tax rate and imposing a corporate minimum tax, Biden would pass tax changes on corporations.
Biden’s plan includes all sorts of changes and updates to the payroll tax, individual income tax, estate, and gift tax changes, but two particular changes stand out for the real estate industry.
Elimination of 1031 Exchanges
He has detailed many updates and additions, but one of the tax provisions he wants to eliminate would have a major impact on real estate.
Biden’s proposed tax plan would eliminate the ability to defer capital gains on the sale of real property in a like-kind exchange.
A like-kind exchange is also referred to as a “1031” exchange. This allows real estate investors to swap one real estate investment property for another and reduce or eliminate the capital gains tax on the sold property.
It’s very popular among investors and developers.
The IRS has recently issued new regulations that specifically outline what constitutes real estate property in order to determine eligibility for Section 1031 like-kind exchanges.
However, those provisions would be doubtful if your ability to make a Section 1031 exchange is eliminated or you’re unable to get your exchange done before that elimination takes place.
It would be advisable to consider taking advantage of Section 1031 exchange breaks before a Biden tax plan could potentially eliminate it.
First-Time Home Buyer Assistance
According to Joe Biden’s campaign website, Biden has also pledged to “provide financial assistance to help hard-working Americans buy or rent quality housing.”
Part of a Joe Biden tax change would re-establish the First-Time Homebuyers’ Tax Credit, which was originally created during the Great Recession to help the housing market.
Biden’s updated homebuyers’ credit, referred to as “First Down Payment Tax Credit,” would provide up to $15,000 for first-time homebuyers.
Building off of a temporary tax credit expanded as part of the Recovery Act, this tax credit will be permanent and advanceable, meaning instead of waiting to receive the assistance when they file taxes the following year homebuyers receive the tax credit when they make the purchase.
Proposed, But Not Guaranteed
A new Administration often comes with a major overhaul to tax regulations, but it is worth noting that the President can’t raise or lower taxes on his own.
Congress has to pass legislation to adjust taxes and then send the bill to the President for signature.
If the Senate remains in Republican control, getting new tax legislation passed may be difficult to achieve.
Reference Source: ARLNow
