As the theatrics of the first debate showed, this election campaign is about social issues, not finance. However, at the end of the day, most Americans will still tend to vote their pocketbook. So, in this fifth in a series of six blogs about tax platforms, lets take a look at some real estate issues that will affect many of you.
Under the Trump plan, the tax laws passed in 2017 allowing some depreciable real estate assets to qualify for accelerated depreciation write offs will be extended beyond 2025. Basically, no change from current law. Under the Biden plan, those accelerated write offs will not be available to corporations, and its unclear to what extent he would roll them back for individuals.
What is clear is that the Biden plan would disallow 1031 exchanges for taxpayers with over $400,000 in income. Since many real estate exchanges occur inside an entity such as an LLC or partnership, it’s unclear if the $400,000 threshold applies at the entity level or the investor level, or both. The real estate industry would be heavily impacted by this as would any real estate investor looking to swap properties.
The 2017 Tax act also created a new Qualified Business Income Deduction of 20% of net income for many domestic businesses, including rental real estate. This was done to maintain parity between corporate tax rates and individuals paying taxes on business income. The Biden plan would reverse the QBID as it applies to real estate. The Biden plan also would create additional limitations on deducting real estate losses against other forms of income.
However, it’s not all bad news. The Biden plan would enact a national renter’s credit, create a new refundable first-time home buyer’s credit of up to $15,000, and would create a new tax credit for taxpayers who renovate distressed properties in distressed neighborhoods.
Next week, in honor of Halloween, we will be covering some pretty scary stuff. Stay Tuned!
Paul