Real Estate And The New Administration’s Tax Plan

There are two major changes in the proposed tax plan that would make real estate investment much less attractive.

Increases on Capital Gains

The New Administration has proposed raising the capital gains tax rate to 39.6% on taxpayers earning more than $1M in a given tax period. If this passes it would be disastrous. Why? Because a favorable cap gains tax rate encourages capital investment.

You know. The kind of investment that made America great in the first place.

If this passes, it will reduce the returns that can be achieved on all types of investing including real estate, equities, bonds, and other investments.
Real Estate would still be attractive given the fact that you can generate positive cash flows from property that can be sheltered by depreciation. Also real estate can appreciate in value while using a bank’s money, but it would certainly lose a lot of it’s appeal.

Limits On 1031 Exchanges

Under the new administration’s proposal, these exchanges would be limited to $500K on an individual return and $1M on a MFJ. Currently, there are no limits in place.

What a 1031 does is allow investors to defer cap gains and other taxes on real estate when they reinvest the proceeds from a sale into other investment properties. These exchanges are extremely popular, allowing family farms and other smaller real estate investors to build portfolios.

If this passes, it would be catastrophic.

Should I Sell Now?

Many investors are asking whether or not they should sell their properties before these draconian rules are put into place. Only whatever God you pray to can tell us whether or not any of this will actually be put into place, so the correct answer is maybe.

If they do get these laws passed and you were thinking of divesting a parcel or two anyway, then the obvious answer would be to sell the properties while there is still a favorable Cap Gains Rate in place or the ability to shelter the gain in a 1031. Certainly any investment real estate would sell for a greater price at this point, than it would if these rules are put into place, but only time will tell.

We’ll see. We can only hope that none of this is in our future.

Let me leave you with this.

According to a statements issued yesterday, Cook County will be recommending masks be worn indoors and at crowded outdoor venues.

Earlier this week, our mayor warned us that she would begin steps to curtail the spread of the virus if we again saw 200 new daily cases on the moving average. We were at 184 yesterday.

Well, my Brothers and Sisters, here we go again.

No one can know at this point how far they will go this time, but one thing is certain. The one thing that will get you through this is money. Now that the PPP loans are done, and the EIDL grants and loans have become almost impossible to obtain, that leaves the Employee Retention Credit.

The inferior payroll services are continuing to do these wrong. They don’t exclude the wages from ownership or their family members. They also don’t exclude the payroll necessary to get existing PPP Loans forgiven.

They click a button on their software claiming the credit on all of the wages in a particular quarter. In doing so, they open up potential misdemeanor charges against the owners for over-claiming the credit. We’re currently in the middle of amending some improperly claimed credits where the owners have to return money to the government.

Given the joint FBI, IRS, and SBA task force investigating this sort of abuse down in Springfield, this isn’t a joke. If you haven’t yet signed up for our Employee Retention Credit Consulting and Preparation Program, please do so today.

We’re all going to get through this. Let’s get through it together.

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. If there is anything you need, whether you are a current client or not, you have but to ask. I’m here and I remain,

Sincerely yours,

Chris Amundson
Accounting Solutions Ltd.

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