The last four years have been a smooth ride for the real estate players in the United States of America, as they had one of their own in the White House. Trump, who used to be a real estate mogul indeed, proved lucrative for some of the most prominent players in the real estate industry.
However, now that the democratic presidential nominee Joe Biden has won the elections, real estate industry leaders are keen on the changes they might have to make in their real estate strategies to practice the game still. As a commercial real estate investor, it might be interesting for you to know the fundamental changes in the policies introduced by Joe Biden.
In this context, Joe Biden said, “We don’t need a tax code that rewards wealth more than it rewards work. I am not looking to punish anyone. Far from it”, making his intentions clear that he is not going to favor real-estate policies that might be lucrative to the real estate industry leaders. Adding to it, he further said, “But it’s long past time the wealthiest people and the biggest corporations in this country paid their fair share,” further clarifying that the progressive taxes are going to be continued in the United States of America for the commercial real estate industry leaders.
Thus, the democratic president, Joe Biden, has laid out changes he would make to various commercial real estate policies and programs that the industry moguls loved so far. While in some cases he has been relatively specific, he has been vague with some others. In his nomination acceptance speech on Thursday night, he said, “$1.3 trillion tax giveaway to the wealthiest 1 percent.”
With those said, it might be imperative for commercial real estate realtors to be informed about the key issues that real estate is watching closely in the month of November. Here are the key issues and changes in policies we can expect from Biden’s government.
#1 – Opportunity Zones
The opportunity zones program, which was included as part of the Republicans’ federal tax overhaul in the month of December 2017, offered capital gains tax breaks to developers who invested in more than 8,700 designated areas across the states. Joe Biden has indicated that he would reform the program. He also called on opportunity funds – the money raised to take advantage of tax breaks, to incentivize partnerships with NGOs and community groups. Thus, Biden’s program is perceived as one which might pour in investments into the previously “neglected neighborhoods,” encouraging development in the various economically distressed “zones.”
#2 – Fair Housing
The Republican rule furthered Fair Housing rule in America, touting that doing so would prevent suburbs from having to welcome low-income housing practices in their communities. The 2015 law required the local governments which received federal Housing finance Singh to identify such discriminatory housing practices and devise a plan to fight them. Biden has indicated that he would reinstate this rule.
While the affordable housing advocates support him, his rule is one of the many efforts that collectively have been resisted and even evaded by much of suburbia. While his fair housing practices might be good news to some real estate investors, it might be an expensive affair for others. However, it must be noted that there is only a little one can do to change these policies. Instead of reacting to them, responding to them with modest changes in strategies might be helpful.
#3 – Chinese businesses in the USA
After Donald Trump banned the Beijing-based companies from carrying on its operations in the US he had in the executive order, which gave the company an ultimatum asking them to find a buyer for US operations in 45 days or to leave the country. A similar order was also signed withstanding transactions with Chinese app WeChat.
Although Biden has instructed his staff not to use these Chinese apps, he could still offer landlords some hope that their Chinese tenants will not be banished from the country. Thus, the realtors with Chinese tenants have less to lose with Biden’s government. This holds especially true for the realtors with their business retail spaces occupied by Chinese tenants, be it Chinese Restaurants or Fast Food Chains. This would be major welcome news for the Durst Organization, which reportedly agreed to lease 232,000 square feet to China’s TikTok at its Time Square office tower while also renting spaces to other landlords needing tenants in a risky commercial office market. The retail office space market is one of the significant investment vehicles, and Biden’s inclusive government is good news to these investors.
#4 – State and Local Taxes
The tax cuts and Jobs Act of 2017 implemented a flat $10,000 cap on deductions of state and local taxes in the country. This disproportionately hit the high tax states such as New Jersey and New York, where tax bills typically exceeded $10,000. This change allegedly sent chills to the tri-state area as these residential markets where the property taxes alone can be very high, shooting up the taxes by many folds. Biden’s democrat party passed a bill that would have increased the salt deduction flat cap to $20,000 in 2019 and then get away with it entirely in 2020 and 2021.
Biden’s win is good news to these high-tax states like New York or New Jersey. The real estate players in the states are hoping for the increase in the SALT deduction cap, and it would be good news if the government gets away with it entirely by the end of 2021.
Further, if the government would pass a bill to raise or eliminate the cap, Biden is more likely to sign it. That’s good news to the savvy commercial realtors in New York and other high-tax States.
#5 – 1031 Exchanges
The 1031 tax code provision, which allows real estate investors to defer their taxes by rolling capital gains on the recent property sales, was pretty much on the chopping block as part of the 2017 tax overhaul. Biden has proposed to make 1031 exchanges available only to those who make less than $400,000 per annum. This change is supposed to help raise revenue for Biden’s $775 billion plan to fund childcare and care for the elderly over the next decade.
While there are mixed opinions about Biden’s policies to bring up the child and the minority communities in the United States, the industry leaders are skeptical whether or not Biden’s “caring economy” plan, especially concerning the 1031 exchanges, would prove to be beneficial to the United States which is an already struggling economy given the COVID-19 situation.
As it is evident that the 131 exchanges are very near and dear to the real estate industry players, taking this away from them might lead to many unforeseen changes in the commercial real estate economy, which in the opinion of many people, The USA struggling economy is not prepared for. How it actually plays out after implementation is something we can only wait and watch.
