This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Enjoy!
Question: What are the key tax changes Joe Biden is proposing that will impact real estate?
Answer: Joe Biden’s proposed tax plan is full of interesting details, so I reached out to the tax experts at Bormel, Grice & Huyett, P.A. for their input on the details that would have the most direct impact on real estate. Below, Matt Bormel (301-953-3259), shares the two biggest changes that President-elect Joe Biden will likely champion as part of his overhaul of the current tax code.
Take it away Matt!
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. Biden would enact tax changes on corporations by raising the corporate income tax rate and imposing a corporate minimum tax.
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
The President-elect 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 — sometimes referred to as a “1031” exchange — 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 moot 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.
With that being said, it would be prudent 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 homebuyers receive the tax credit when they make the purchase instead of waiting to receive the assistance when they file taxes the following year.
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 without many compromises may be difficult to achieve.
As more updates become available, you can count on the experienced tax professionals at Bormel, Grice & Huyett, P.A. to provide thorough updates and guidance on how to proceed.
If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local real estate, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at www.EliResidential.com. Call me directly at 703-539-2529.
Eli Tucker is a licensed Realtor in Virginia, Washington D.C., and Maryland with RLAH Real Estate, 4040 N. Fairfax Dr. #10C Arlington, VA 22203, (703) 390-9460.