While campaigning for office, President Joe Biden proposed numerous tax law changes that, if enacted, would have significant impacts on the multifamily industry. The biggest potential change is the end of 1031 exchanges,...
As we head into March, taxes are top of mind for many of us, especially with a new administration in place and tax code changes likely in the months ahead.
Read on to see what changes could directly impact the multifamily industry—and your bottom line.
Possible Tax Changes—Good and Bad—for the Apartment Industry
While campaigning for office, President Joe Biden proposed numerous tax law changes that, if enacted, would have significant impacts on the multifamily industry. The biggest potential change is the end of 1031 exchanges, also known as like-kind exchanges, which Biden has proposed eliminating.
“Like-kind exchange rules play a crucial role in supporting the multifamily sector by encouraging investors to remain invested in real estate while still allowing them to balance their investments to shift resources to more productive properties, change geographic location, or diversify or consolidate holdings,” according to the National Multifamily Housing Council, which provided a breakdown of the president’s tax proposals.
Also on the NMHC’s radar is a possible change to the tax rate on capital gains. Currently, the capital gains tax rate for assets held over one year maxes out at 20 percent, but Biden has proposed increases to this rate to 39.6 percent for taxpayers earning over $1 million. Capital gains for those in this higher tax bracket would effectively become taxed at the same rate as income.
The president is also seeking to impose significant tax increases on income derived from investment and management of multifamily real estate, as well as diminish the ability of individuals to transfer assets to heirs on a tax-free basis.
However, the Biden administration is also likely to bring forward proposals to increase affordable housing, which would be welcomed by the industry. He wants to expand the Low-Income Housing Tax Credit by $10 billion and add $5 billion a year for a renter’s tax credit limiting rent to 30 percent of one’s income, for those who make too much to qualify for Section 8.