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We’re just over one month away from January 20, 2021, and in case you haven’t been following the news, this is the day that Joe Biden will be inaugurated as the 46th President of the United States.

With a new President comes changes to the income tax code and every other part of life. The big question is how will Joe Biden’s Administration affect the real estate market, and real estate investing during his term in office?

In this article, I’ll provide you with insight into what to expect under Biden’s Administration and tips on what real estate moves you should be making now.

Understanding How Joe Biden’s Presidency Will Affect Real Estate

Before I unpack what, the real estate market could look like under Biden’s Administration, the most important thing to know is that barring executive action, Biden will have to get approval from congress for his proposals or they won’t pass.

Right now, the Democrats will control the House in 2021 and they may likely control the Senate too unless republican candidates will the January runoff election so we will have to wait and see what the Senate is going to look like in January.

There’s little doubt that Joe Biden’s Administration is going to need money to fund social programs and real estate is often a prime target.

The first major change that we can expect as real estate investors is that the 1031 Exchange could soon be eliminated.

1031 Exchange Changes:

With the 1031 Exchange, investors can take advantage of a ‘loophole” that gives them the ability to defer paying capital gains on a property that they’ve sold by investing the money that they earning from that sale into another ‘like-kind’ property.

1031 Exchanges have been in existence since the 1920s but we live in a different world today and that capital gains revenue is badly needed by the government.

If Biden’s Administration can change 1031 Exchanges, many real estate investors could likely see huge tax burdens in the coming years and there could be a drop in commercial real estate deals across the United States by as much as 20%.

Opportunity Zones:

Even though President Trump and Biden have had their differences during the election, Biden has stated that he only wants to ‘modify’ Opportunity Zones, not eliminate the program.

His reason for modifying the program goes back to his desire to see the program help affordable housing and local commercial buildings instead of luxury apartments.

Joe Biden is on record stating that his goal is to limit Opportunity Zones to investors who don’t make more than $400,000 per year. This move would potentially bring in more than $775 billion for child and senior care payments over 10 years.

Reid Thomas of NES Financial, which administers Opportunity Zone funds, said one of the larger concerns for Opportunity Zones investors is the possibility of Biden raising capital gains taxes. By increasing capital gains taxes, it could negate some of the benefits the program provides.

“Whenever there is uncertainty it causes people to slow down,” Thomas said. “What Biden is saying about capital gains taxes, in general, is causing people to be nervous.”

More on the realdeal.com

passive income

SALT Tax Deduction Could Return

Another change that we could see under the Biden Administration is a return of State and Local Tax (SALT) deduction.

These tax breaks were huge for investors in California and New York under the Obama Administration, but under President Trump, he capped on SALT tax deduction which barred investors from deducting over $10,000 in local and state taxes.

With the Biden Administration, there may be more favorable to see SALT tax deduction return, especially if the Democrats retake the Senate, so it’s understandable why that January runoff is so important because it could have a lot of implications that affect our country for years to come.

Top Multifamily Markets For 2020

Capital Gains

Biden proposes taxing capital gains as ordinary income for taxpayers with over $1 million in income, nearly doubling the current rate from 20% to 39.6% (not including net investment income tax). Biden has made this a frequent talking point, but it would likely encounter some of its fiercest opposition from Republicans and even Democratic moderates.

More on grantthornton.com

Top Marginal Individual Tax Rate May Be Raised To 39.6 Percent

  1. Raising the top marginal individual income tax rate to 39.6 percent, a restoration of the pre-Tax Cuts and Jobs Act (TCJA) rate;
  2. Creating a payroll tax “donut hole” where the Social Security tax (6.2 percent each for employer and employee), currently only imposed on the first $137,700 of wage income and therefore not part of a marginal rate, is restored above $400,000 of income;
  3. Restoring the so-called Pease Limitation, which reduces the value of itemized deductions by 3 percent of every dollar of taxable income above a certain threshold (which can be expressed as a 1.118 percent marginal rate under a 39.6 percent top rate tax); and
  4. Capping all itemized deductions at 28 percent.

More on taxfoundation.com

economic recession
When Could These Changes Happen?

Biden’s Administration needs to move fast once it takes office in January because it may have to stave off a pending foreclosure and eviction crisis unless the Trump Administration resolves both problems.

Once he’s in office, his power to move fast depends on the balance of power in the House and Senate but with the U.S. economy already on shaky ground, likely, he may not make any major changes for at least his first year in office.

What should you be doing right now? If you’re in a position to buy multifamily real estate before December 31st, you shouldn’t hesitate to buy now especially since you can take advantage of the current income tax code before it changes.

Contact Trier Capital

At Trier Capital, we specialize in multifamily investing and have helped our clients enjoy the benefits of multifamily without having to do all of the hard work themselves.

Our simple step-by-step process allows you to accelerate your wealth creation so you can live a magnificent life on your terms, whether that means traveling the world, spending more time with family and friends, or making an impact. 

To learn more, contact me at (630) 229-2383 or click here to connect with me online.

 

 

 

Erik Hatch

Erik is currently invested in projects in Florida, Texas and Kentucky totaling $79 Million. He is an accomplished leader who motivates and inspires action while at the same time, is grounded in business metrics and information that drives successful businesses.