With Joe Biden’s recent inauguration as the 46th president of the United States, he’s poised to enact an ambitious agenda. Although his most pressing goal is to get the COVID-19 pandemic under control (thankfully), the Biden administration has plans that may affect the real estate industry. Here, I share more about proposed plans and what investors may expect:
Possible Changes on the Horizon
Biden enters his presidency with a razor-thin majority in Congress, but it’s unclear which priorities will actually become policy. However, it’s safe to say that the Biden administration plans to extend the nationwide moratorium on residential evictions until September 2021. While this is certainly a win for families who are facing hard times due to the pandemic, it may be less welcome news for real estate investors.
Additionally, Biden hopes to end wealth-protective tax breaks that many real estate investors have become accustomed to. Notably, the new administration plans to curtail the 1031 exchange, which allows sellers to skirt capital gains taxes by immediately purchasing another property with the proceeds. If this change is to go into effect, however, it will only affect those earning more than $400,000 per year.
If the proposed changes become law, investors may still have the opportunity to postpone the need to pay capital gains taxes by investing in Opportunity Zones. These zones were created in the 2017 tax reform with the goal of bringing capital to low-income areas.
Additionally, the Biden administration may move to raise taxes to combat wealth inequality. Under the 2017 tax reform, an individual may pass on $11.7 million to heirs, free of taxes, while married couples may bequeath up to $23.4 million tax-free. Biden aims to roll this back, so many wealthy families would be spurred to sell a property when the owner dies.
Brokers may benefit from the Biden administration’s goal to end the stepped-up basis, a wealth-protective tax policy that reduces inheritance taxes. By abolishing the stepped-up basis, more families may be inclined to sell rather than hang on to property from generation to generation. If this goal is achieved, the plan is to allocate the extra federal taxes for two years of free community college.
Finally, Biden may deliver a win for developers by reinstating a rule that requires localities to demonstrate how they’re advancing affordable housing. This proposal has the potential to boost multifamily housing such as apartments in suburban areas that have previously resisted bringing in more affordable housing construction.
Biden’s plans for his term have the potential to bring sweeping changes to the real estate industry. Although the possible taxation changes may be disappointing to some investors or those who expect to inherit property, the larger impact of ending the coronavirus pandemic signals brighter days ahead.