The National Association of REALTORS® (NAR) is concerned about three tax proposals that could limit real estate investment at a time when the U.S. desperately needs more housing.
Over the next two months, President Joe Biden and congressional Democrats plan to consider their ambitious legislative plan, the “Build Back Better” plan. The plan includes two bills: one covers hard infrastructure like roads and bridges, while the other addresses social infrastructure like health care and education. To help fund these two bills, Congress and the Biden administration are considering many different tax proposals.
NAR has identified these three tax proposals as specific tax provisions to avoid because they will set our affordable housing efforts backward:
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Limitation on 1031 like-kind exchanges: By allowing property owners to defer capital gains when one property is exchanged for another, like-kind exchanges help get real estate into the hands of new owners with the time, resources and desire to restore and improve the properties.
Section 1031 is a key tool used in the development of affordable housing.
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Capital gains tax rate increases: High capital gains taxes on real property will negatively impact the after-tax return of larger real estate development projects, including affordable housing, meaning that fewer projects will move forward. Lower capital gains rates provide an incentive to invest capital, which increases economic growth and creates jobs and more housing.
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Taxing unrealized capital gains at death: Proposals to tax the unrealized gains of owners of capital assets above a certain level upon their death would penalize many hardworking Americans who have spent their lives saving and building equity in their properties and businesses so they can provide security for themselves, their families and others. This proposal would create a second estate tax that could unfairly destroy family succession plans and result in many properties needing to be sold to pay the tax.
NAR will continue to educate lawmakers on these issues and more as Congress debates the details of the Build Back Better proposals.