The 2020 Election – What’s at Stake for the Real Estate Industry?By Alan M. Blecher | October 28, 2020
The past several years have borne witness to a historic amount of change in the real estate industry, much of which was ushered in with the passing of the Tax Cuts and Jobs Act (TCJA) in 2017. This landmark tax reform set forth by incumbent President (and real estate industry veteran) Donald Trump took countless hours to understand and implement across the industry. Now, with the 2020 Presidential Election looming, the fate of many critical matters related to the taxation of real estate remains unknown. Below are some of the key issues Marks Paneth will be monitoring as the outcome of the election unfolds.
Qualified Business Income Deduction
From the campaign trail, Joe Biden has expressed a desire to roll back “unproductive and unequal tax breaks” for real estate investors with incomes over $400,000. More specifically, he has proposed ending the favorable “Qualified Business Income Deduction” for owners of real estate businesses–its inclusion in the TCJA at the 11th hour had the industry’s fingerprints all over it.
Like-Kind Exchanges and Real Estate Loss Deductions
Every now and then, one used to hear rumblings that the “like-kind” provisions were on the chopping block. Indeed, the whispers became real under the TCJA, when these rules were eliminated for exchanges of all but real estate. However, Biden has indicated that he may take aim at this last remaining vestige of the like-kind exchange rules, thereby eliminating them altogether. The deductibility of real estate losses could also be in the crosshairs.
One of the provisions in the TCJA which seemed to strike a compromise between both major parties was the Qualified Opportunity Zones (OZ) program. Biden does not appear to want to end the OZ program, but does want to mend it, in his view, by (i) incentivizing OZs to cooperate with community organizations to develop a community benefit plan for each investment, focusing on creating jobs in the OZ for low-income residents and otherwise providing a direct financial impact to residents; (ii) requiring that OZ benefits be reviewed by the Treasury to ensure they are only being allowed where there are clear economic, social and environmental benefits to the community, and not simply the generation of big returns for investors; and (iii) providing transparency through detailed reporting.
Although not specific to real estate investing, the taxation of capital gains is another issue that stands to be impacted by the results of the election. Biden has expressed a desire to raise the maximum marginal federal rate, currently at 37% under Trump, to 39.6%. The long-term capital gains rate (currently at 20%) would also be extended to that number for individuals with incomes in excess of $1 million—which could have a dramatic effect on real estate investors.
Pending the results of the upcoming election, the real estate taxation landscape could be altered dramatically. The professionals in Marks Paneth’s Real Estate Group are closely monitoring all developments and will continue providing updates and guidance as additional information is received. I hope all of you will join us the morning after the election for Marks Paneth’s New York Real Estate State of the Market Seminar to keep the conversation going.
About Alan M. Blecher
Alan M. Blecher, JD, is a Principal at Marks Paneth LLP. Mr. Blecher has considerable experience serving high-income and high-net-worth individuals and their closely held businesses. He focuses especially on partnerships, limited liability companies and S corporations. He has been in public accounting since 1985. He has been involved in tax planning for numerous transactions, such as those involving public debt offerings, sales of family businesses and restructurings of distressed entities, among others. Mr. Blecher... READ MORE +