The 6 Major Changes In Biden’s Proposed Tax Plan
After the crucial January 5th election in the Georgia Senate run-off, Democrats now control the House, Senate, and Presidency for the next two years. The Senate is split 50/50 and the tie-breaking vote will go to the Vice President. This means many newly proposed laws could to be passed without much resistance. Although nothing is certain in how these issues will play out, it is important to be aware of the proposed changes in Biden's tax plan when he was running his campaign and to know how this might impact commercial properties.
Increase Capital Gains
Biden is proposing to tax capital gains as ordinary income, as is done in the state of California. This would increase the capital gains tax rate on the highest earners from 23.8% to the highest personal income tax rate of 43.4% (explained in #4). A focus on the highest earners is important because many property owners who sell their property in a given year will be included in this highest tier.
Remove Step-Up Rule
A very significant proposed change to the tax laws is removing the “step up in basis”. This would have serious implications on Estate planning and many property owners long term plans. By removing the step up in basis, owners who wish for their children to inherit the property without the tax implication will not have that benefit anymore.
Eliminate 1031 Exchanges
Biden’s proposed tax plan includes removing the 1031 exchange. This would remove the tax deferral of purchasing a real estate property after selling your property. This would have serious implications on the commercial real estate market overall, as investors may not look to repurchase properties after a sale and reduce overall demand.
Increase Personal Income Tax
Proposed here is increasing the top individual income tax rate for taxable incomes above $400,000 from 37 percent under current law to the pre-Tax Cuts and Jobs Act level of 43.4 percent
Increase Corporate Income Tax
For corporations, Biden has proposed to increase the corporate income tax rate from 21 percent to 28 percent.
Alter Estate Tax Law
The estate and gift tax has a proposed change to reduce the exemption amount to $3.5 million and increase the top rate for the estate tax to 45 percent.
It is our hope that even as the Democrats have won the majority in the Senate, many, if not all, of these proposals do not pass. These proposals will cause a shift in many different industries and have an impact on many individuals and their long term real estate plans. To discuss more about any of the above proposals or to talk about how your commercial property may be impacted, feel free to call me at (858)458-3361 or email me at ajize@voitco.com.