The Biden Administration’s method in order to fund the American Families Plan is to increase taxes on the wealthy while also getting rid of profitable options for investors who are looking to move into low-maintenance properties for their retirement. Raising capital gains tax, or eliminating tax codes such as the 1031-exchange could also bring unintended consequences to property owners outside of the social class that the initiative is intended for.
Taxes will be raised significantly for transactions bringing in gains of more than $500,000—an almost 20% increase—with the goal of funding the American Families Plan. More importantly, the 1031-exchange will become nearly impossible to shoulder for owners who were savvy 20-years-ago, and either want to exchange or leave the asset as inheritance for children.
The fact of the matter is that even middle-class home owners are against the ropes here.
But the biggest concern yielded from a survey released by CNBC, and The Realtors, shows that small property owners are the ones that will endure the majority of the changes if the 1031-exchange is altered.
“Although Biden’s plan targets the wealthy, the proposal may also hit smaller investors. The Realtors survey showed 84% of 1031 exchanges were by smaller investors — those in sole proprietorships (47%) or S corporations (37%).”CNBC
Additionally, there is a fear that rents could also spike at an unreasonable rate for some renters as landlords try to recover losses. Landlords who are already strapped due to the pandemic, and eviction moratoriums, will resort to increasing rents on tenants who are also scathing away from the health crisis.
“Listings increased by 50% week-over-week when Biden’s plan was released,” Centennial Advisers Managing Director Justin White said. “There is still time but it’s not going to last forever.”