Ep. 243: How President-Elect Biden’s Policies Will Affect Real Estate Investors

Unlike any election we’ve seen before, it took five days before the media declared a winner in the 2020 Presidential Election. While President Trump has alleged voter fraud, there does not appear to be any proof that validates that claim. As it stands, Joe Biden won the election and is the President-Elect. But how will President-Elect Biden’s policies affect real estate investors? Is the 1031 Exchange being eliminated? Will bonus depreciation go away? 

 

The change in leadership means a change in philosophy and policy. It is clear that Biden plans to roll back some of the tax breaks and benefits that were enacted through the 2017 JOBS Act under the Trump administration. According to NREIOnline, Biden proposed a 10-year, $775 billion plan to provide universal childcare and in-home elder care. According to the 10-page proposal, it “will be paid for by rolling back unproductive and unequal tax breaks for real estate investors with incomes over $400,000 and taking steps to increase tax compliance for high-income earners.”   

 

The plan only mentions the tax once and other details are scarce, if non-existent. Joe Biden’s own website, joebiden.com offers little more detail on the taxes that impact real estate investors. However, multiple publications have reported that this plan would target three popular tax strategies: bonus depreciation, 1031 exchanges, and the step-up basis. 

 

• Bonus depreciation: enacted through the 2017 JOBS Act and allows you to accelerate the depreciation time frame for eligible elements instead of writing them off over their normal useful life. 
• 1031 Exchange: history goes all the way back to 1921. A 1031 exchange allows you to roll your equity from one investment property into another investment property of equal or greater value while delaying the capital gains tax. 
• Step-up basis: allows you to “step-up” the value of inherited property to today’s value so you are not responsible for paying capital gains tax on the equity that was created before you inherited it.

 

I discuss how these policies may impact investors and the likelihood that they may get implemented at all. In addition, Biden’s website has three other policies that I discuss including a priority to create more affordable housing, provide support to reduce evictions, and ending systemic practices like redlining that have hurt minorities. 

 

Key insights on President-Elect Biden’s Policies on Real Estate

 

• Joe Biden’s housing plan (link to info)

 

A top priority for President-Elect Biden is creating more affordable housing.

 

• The benefits and concerns of Biden’s vision for affordable housing development 

 

• Biden’s plan for helping residents with evictions and what that means for landlords

 

An eviction is truly a last resort for most property owners.

 

• How my company handled tenant shortfalls during COVID

 

• Biden wants to end systemic practices that have made it harder for minorities, especially African-Americans to own real estate (end red lining) 

 

• Biden vs. the 1031 Exchange

 

• Biden’s proposal would impact investors earning incomes of more than $400,000

 

I’m less concerned about the 1031 Exchange because it’s been talked about so long and is in place, and we still have a republican senate (as of now).

 

• Benefits of utilizing a 1031 Exchange and what could happen if the law is changed

 

• Understanding how Step-Up Basis works now, and what would happen if it was repealed (A step-up in basis reflects the changed value of an inherited asset)

 

If the step-up basis gets eliminated, very few heirs will be able to pay the capital gains tax. 

 

• How the republican senate will play a big role in real estate policies

 

• How to take advantage of bonus depreciation (fast-forwarding the depreciation of any asset) before Biden gets rid of it 

 

Bonus Depreciation is set to expire in 2023 and will be harder to renew.

 

• How to get updates on policy changes that affect real estate investors, landlords, brokers, etc.

 

• My final thoughts on the possible changes and how to deal with the proposed impact 

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