What Tax Changes President Biden Presented in His Joint Address to Congress

On Wednesday, President Biden held his first joint address to Congress. In his address, he unveiled many governmental programs and his plan to change the tax code to pay for it. As we wrote about in December, many of the proposals from President Biden’s campaign are now being put in front of Congress to decide what gets passed. The following are the proposed changes from Wednesday’s address to Congress concerning the “American Families Plan”.

 
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1.     Increase Capital Gains

President Biden is proposing to increase the tax rate on the highest earners (earning over $1 million) from 23.8% to 43%. 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 as property valuations are at all-time highs and have appreciated over the years.

2.     Remove Step-Up Rule

A very significant proposed change to the tax law is removing the “step up in basis”. The President is proposing to end “the practice of ‘stepping-up’ the basis for gains in excess of $1 million ($2.5 million per couple when combined with existing real estate exemptions) and making sure the gains are taxed if the property is not donated to charity”.

3.     Eliminate 1031 Exchanges

Biden’s proposed plan includes removing the 1031 exchange for gains greater than $500,000. This would remove the tax deferral of purchasing a real estate property after selling your property.

4.     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 39.6 percent

5.     Increase Corporate Income Tax

For corporations, Biden has proposed to increase the corporate income tax rate from 21 percent to 28 percent.

Overall, it is our hope that these measures do not pass-through Congress and get enacted into law. These proposals would have an impact on many property owners 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

Alex Jize