Many analysts and the media have spun the tax proposals by the Biden administration in such a way that only suits their narrative.
The White House says it “Makes Big Corporations and the Wealthy Pay Their Fair Share.”
E.J. Antoni, an economist and research fellow at The Heritage Foundation, said in an interview with Fox News Digital, “If you’re going to tax something, you get less of it,” he continued. “And that’s just as true for investment as it is for anything else. Taxing capital gains means less investment, less economic growth, and a dramatic slowing of the rise in people’s standards of living.”
The Tax Foundation, which describes itself as an “independent tax policy research organization”, although seen by mediabiasfactcheck.com as Right-Center biased based on its advocating for Libertarian economic policy, but in large part highly credible having passed 100% fact checks in the past 5 years, says it estimates the changes would reduce long-run GDP by 2.2 percent, the capital stock by 3.8 percent, wages by 1.6 percent, and employment by about 788,000 full-time equivalent jobs.
While we generally stay away from any political discourse in our real estate investing community, as a businessman and real estate investor, there is no doubt in my mind as to which box I will not be thumb-printing come November.
Notably, the Biden 2025 Budget proposal seeks to tax capital gains at 45%. It’s even worse news for those in certain states as the federal and state capital gains tax would exceed 50% in states like California (59%), New Jersey (55.3%), Oregon (54.5%), Minnesota (54.4%), and New York (53.4%).
The 2025 Budget Proposal also threatens to impose hard limits on IRC Section 1031 like-kind exchanges. Currently, real estate investors can defer gain on the exchange of the property for real property of a “like-kind” and continue to “kick the can down the road,” avoiding capital gains taxes.
Real Estate Investing still Wins
Slow your row, Debbie Downer; the proposal would only allow the deferral of gain up to an aggregate amount of $500,000 for each taxpayer ($1 million in the case of married individuals filing a joint return) each year for real property exchanges that are like-kind.
Any gains from like-kind exchanges in excess of $500,000 (or $1 million in the case of married individuals filing a joint return) in a year would be recognized by the taxpayer in the year the taxpayer transfers the real property subject to the exchange. (The proposal would be effective for exchanges completed in taxable years beginning after December 31, 2024.)
So unless you are Donald Bren, who might be worried about potentially getting taxed on his tens of millions of dollars in capital gains each year, real estate investing will continue to make those who take the opportunity build their net worth in the long term, year after year!
Continue to grow your wealth with real estate
Practically, if you join one of our investments, and we profit, unless you are profiting more than $500k as single or $1m as married filing jointly, you could still be deferring those capital gains tax if you continue to reinvest in real estate.
Here’s the General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals.
**We are not certified tax experts.**
