The Biden administration has proposed sweeping tax bills that could include changes to capital gains taxes, 1031 exchanges and the proposal to raise taxes on inherited property gains at death. At this point there is no telling what will happen as these proposals reach a divided congress for approval.
This may be the time, however, to review your investment and estate plans with your legal and financial “team” so that you are in the best possible position for your needs and goals.
These changes would have the potential to affect investment in real estate. Biden has proposed raising the capital gains tax rate to 39.6% for people making more than $1 million a year.
Other changes being discussed are to limit the use of 1031 like-kind exchanges.(A 1031 exchange allows property investors to defer capital gains and other tax on investment gains when they reinvest the proceeds in other investment properties.)
The proposed bill also looks to raise taxes on inherited property gains at death, which will affect many more families than just wealthy ones. Currently heirs can defer taxes until they sell the home and can adjust the home’s value to the date of death. This saves taxpayers up to $41 billion a year. The proposed bill would view home inheritance like a sale, and would make heirs pay for gains that happened before they receive the property.
It is a good idea to discuss these changes with your professional advisors and see if there are planning changes you can make to avoid being caught unaware and facing a larger tax bill.
Sources: CNBC, Marketwatch, Kiplinger
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