Although REALTOR® Associations remain neutral in Presidential races, we have put together a synopsis provided by a tax expert to break down tax proposals by the candidates that would most impact the real estate industry and real estate professionals.
Income Tax Rate Proposals
Joe Biden:- Reinstate 39.6% as the highest tax rate, up from the current 37%.
- Make tax rates enacted in the Tax Cuts and Jobs Act (TCJA) of 2017 permanent, including keeping the top rate at 37% (see below).
Itemized Deduction Proposals
Joe Biden:- Restore Pease limitation on itemized deductions for those with taxable income above $400,000 (this limit reduced most itemized deductions by 3% of the excess of income over the threshold).
- Cap the effective benefits of itemized deductions at 28%. In other words, those in income tax brackets higher than 28% would receive only 28 cents per dollar deduction value for the deductions.
- Permanently extend the portions of the TCJA that are set to expire at the end of 2025 (see below).
Capital Gain Tax Proposals
Joe Biden:- Raise long-term capital gains tax rate from 20% to 39.6% for those with income over $1 million per year. This would apply to the tax rate on qualified dividends as well.
- Eliminate the step-up in the basis of assets to their fair market value (FMV) on assets that are bequeathed or subject unrealized gains at death to capital gains tax.
- Likely repeal capital gains tax rate for carried interests.
- Reduce top capital gains tax rate to 15%.
- Possibly index capital gains for inflation.
Payroll Tax Proposals
Joe Biden:- Impose a 12.4% Social Security payroll tax on earned income above $400,000 (evenly split between employers and employees).
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- Under current law, for 2020, the 12.4% Social Security tax ends once earnings reach $137,700.
- Forgive payroll taxes deferred under the August 2020 Executive Order and make permanent payroll tax cuts if re-elected.
Proposals for Specific Real Estate Provisions
Joe Biden:- A refundable tax credit of up to $15,000 for first-time homebuyers and make it available when the home is purchased instead of when the tax return is filed.
- Expand the Low-Income Housing Tax Credit.
- Provide a renter’s credit to reduce the rent and utility costs to 30% of income to low-income individuals.
- Provide tax credits or accelerated expensing for energy-efficient homes and commercial buildings.
- Limit or repeal section 1031 Like-Kind Exchanges.
- Eliminate the passive loss exemption of up to $25,000 for losses from real estate rentals.
- Repeal faster depreciation for residential real estate (27.5 years) and presumably make it the same as for non-residential commercial real estate (39 years).
- Permanently extend the portions of the TCJA that are set to expire at the end of 2025 (see below).
Estate Tax Proposals
Joe Biden:- Restore estate tax exemption level to 2017 amounts (TCJA raised the exemption from $5.49 million to $11.18 million (for 2020, the indexed exemption is $11.58 million).
- Eliminate the step-up in the basis of assets to their fair market value (FMV) on assets that are bequeathed or subject unrealized gains at death to capital gains tax.
- Permanently extend the portions of the TCJA that are set to expire at the end of 2025 (see below).
Other Tax Proposals
Joe Biden:- Provide $5,000 for informal caregivers of elderly or those with disabilities.
- Replace the deduction for traditional Individual Retirement Accounts (IRAs) and defined contribution pension plan contributions with a refundable tax credit and automatic enrollment.
- Expand child and dependent care credit to $8,000 per child (maximum of $16,000) and make it refundable.
- Forgive student loan debt and make the forgiven amount exempt from taxation.
- The phase-out benefit of section 199A Qualified Business Income Deduction (for independent contractors and owners of pass-through businesses) for taxpayers with incomes over $400,000.
- Repeal the temporary net operating loss (NOL) provisions enacted in the CARES Act.
- Permanently extend the portions of the TCJA that are set to expire at the end of 2025 (see below).
Note on Extending Expiring Portions of Tax Cuts and Jobs Act of 2017.
Unless the following tax provisions are extended, on January 1, 2026:- The individual tax rate structure will revert from tax brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37% back to 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
- The section 199A Qualified Business Income Deduction will disappear (for independent contractors and owners of pass-through businesses).
- The standard deduction will drop from an inflation-adjusted amount of $24,000 to $12,700 for joint returns and half these amounts for single filers.
- The per-child tax credit will decrease from $2,000 to $1,000.
- Personal exemptions in the amount of $4,050 for filer and spouse and each dependent will be restored. These are currently set at zero.
- The $10,000 limit on the state and local tax (SALT) deduction will disappear.
- The $750,000 limit on the amount of a mortgage the interest on which is deductible will go back up to $1 million.
- Casualty losses will again be deductible (and not just in a presidentially declared disaster area).
- Miscellaneous itemized deductions will again be deductible.
- The Pease limitation on itemized deductions will again be in effect.
- Moving expenses will again be deductible.
- The estate tax exemption amount will drop by about half.
- The rehabilitation tax credit for older buildings will once again be available for non-certified historic structures built before 1936.