In recent weeks, President Joe Biden unveiled two momentous plans that are part of his “Build Back Better” agenda. The American Jobs Plan and the American Families Plan are designed with important goals in mind, but the proposals come with significant costs that could result in consequential tax changes and have a tremendous impact on the commercial real estate industry.
We’re at the beginning of the legislative process for these proposals, and there are months of negotiations ahead of us. As a leader in your chapter, we wanted to ensure you are aware of the issues and how NAIOP will be involved throughout the process.
NAIOP’s team on Capitol Hill will be working with Congress to help preserve existing tax treatments that have supported a healthy and vibrant commercial real estate industry so that we can continue to be a leading contributor to U.S. GDP, create valuable jobs, and build communities.
The following are the major tax proposals in the plans:
- Section 1031 like-kind exchanges. Like-kind exchange deferral for exchanges with gains greater than $500,000 will be eliminated.
- Individual top rate increase. The top individual tax rate will increase from 37% to 39.6%.
- Capital gains/dividends. Capital gains and dividends rates will raise to 39.6% for households with an annual income in excess of $1 million. Inclusion of the 3.8% net income investment tax results surtax would result in capital gains rate of 43.4%.
- Carried interest. Capital gains tax treatment on real estate carried interests (also known as “promotes” or “promoted interests”) will be eliminated, taxing at ordinary income tax rates and an increase from 20% to 39.6%. Inclusion of the 3.8% net income investment tax results in an increase from 23.8% to 43.4%.
- Increase in the corporate tax rate. Tax on corporate income will increase from 21% to 28%.
- Stepped-up basis at death. The stepped-up basis will be eliminated, resulting in capital gains taxes being imposed at death for gains in excess of $1 million ($2.5 million per couple). Stepped-up basis ensures that property passed to heirs is valued for tax purposes at the time it becomes part of the estate, instead of at the time of original acquisition of the property.
As these proposals progress, you may field questions from your chapter members on what NAIOP is doing to represent the industry in these discussions. Please assure them that we understand the issues at stake and are working diligently to ensure the prosperity of your business isn’t unfairly targeted or unintentionally harmed in the process.
Aquiles Suarez, NAIOP’s senior vice president for government affairs, will provide an update during a June 22 webinarto answer your questions about what we can expect as the legislative process continues.
Thank you for your support to NAIOP and our important legislative work. I look forward to sharing more with you as soon as possible.
Thomas J. Bisacquino
NAIOP President and CEO