July 2, 2021
If you are invested in commercial real estate you have more than likely been paying attention to the tax plan proposal put forth by the Biden Administration to help fund many new entitlement programs such as elderly and child care.
As a recap here are just a couple of the proposed tax increases that will affect commercial real estate:
- The American Families Plan would tax long term capital gains and qualified dividends as ordinary income for taxpayers with taxable income above $1 million at the top marginal rate of 39.6%.
- The American Families Plan would limit 1031 Like-Kind exchanges by eliminating deferral of gains above $500,000.
Currently, these are just proposals with nothing solid that can be digested by tax professionals in order to help alleviate these burdens when looking to divest of commercial assets.
Needless to say, these tax policies would have a negative impact on the U.S. commercial real estate industry which saw in excess of $400 billion in transactions in 2019 prior to Covid. Owners faced with these tax consequences would lose the incentive and ability to sell and reinvest into larger assets. Industries centered around that trade volume would be negatively impacted as well.
Typically, a new owner is looking to improve upon an acquisition through expansion or renovation. Through that improvement process, many different industries are positively impacted such as painters, steel fabricators, roofers, concrete foremen, security etc. Removing the incentive for an owner to “trade up” takes revenue away from other industries.
Hopefully, there is enough common sense remaining in both the GOP and within the moderate Democrats to help combat and reduce the Biden administration’s spending bill thereby reducing or eliminating the need for such drastic and harmful tax increases.
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