Kent von Nostitz, Advanced Staff Accountant
The world of real estate will always have its ups and downs and 2020 has been no exception. Looking ahead to next year with a new administration there are many changes expected that will create possible shake-ups in real estate. While what I discuss in the following article are planned changes, there is always an unknown if/when/how the government will implement these changes.
The Biden administration plans to offer an array of tax credits that would affect most taxpayers. The tax credit of $15,000 to help families buy their first homes would be appealing to many people. Property managers and rental owners of both single-family and multifamily properties should be aware that this could disincentivize potential younger renters. Instead of opting to rent or lease, the $15,000 advanceable credit could be just enough to sway many into their first houses. Homebuilders, residential real estate agents, and others would greatly benefit from this tax credit as the demand for single-family homes will likely increase.
A potentially huge tax break used by real estate investors could be coming to an end soon. The well-known 1031 exchange of like-kind property has been used by many real estate investors to defer their capital gain from a sale of one property into another property. A more likely approach the Biden administration will take is limiting the use of the 1031 exchange to those making less than $400,000 annually.
Opportunity Zones are also being looked at for modification in the upcoming year. As part of the 2017 tax overhaul, Opportunity Zones were meant to promote development in low-income communities and start a web of economic development in these areas. Not many specifics have been released on how Opportunity Zones could be tweaked. There are some thoughts about how there could be required public reporting on these as well as changing some of the identified zones. For now, the Opportunity Zones are here to stay with possible smaller modifications.
Housing policy initiatives are a major focus of Biden’s administration platform. A key part of this is to create affordable housing in the suburbs. This could be a great opportunity for residential real estate as zoning changes will allow for widespread developments in the suburbs.
The bottom line is that all, none, or some of these changes proposed by the Biden administration could pass the Senate, depending on the status of which party holds the majority. Even if none of Biden’s tax agenda passes through in 2021, it could in the future. Once we have more specifies and details about these changes we will have a much clearer picture of how these policy changes could affect the world of real estate.