Should You Sell Investment Real Estate Now?
That’s what many people are asking. But before you do anything, understand that there’s no telling what will come of President Biden’s tax proposals with a divided Congress, and you do have some interesting options in the meantime.
I’ve been a professional real estate investor since prior to the Great Financial Crisis and have seen pretty much everything: Markets that go up and down, trends that fade away versus take hold and stay and, certainly, changes in political leadership that produce new tax policies.
Now we have President Biden in the White House and are seeing his proclamations and policy positions. Let’s look objectively at indications from the administration and what could happen this year with potential implications for investment real estate.
First things first, the economy at the moment is on fire. U.S. GDP may top 6% this year, according to The Conference Board. To be sure, the recovery is uneven and Covid remains a serious factor on a global basis. But I note the macroeconomy because at my firm, we believe there’s no better indicator of potential demand for investment real estate. When the economy is expanding, demand increases, generally speaking, for income properties occupied by business users and multifamily properties that provide rental housing to people.
Watch for Changes to Capital Gains Taxes and 1031 Exchanges
In terms of tax policy, now on the table from the Biden administration are some proposals with the potential to affect investment in real estate: an increase in the capital gains tax rate and limits on the use of 1031 like-kind exchanges. (Basically, 1031 exchanges allow property investors to defer capital gains and other tax on investment gains when they reinvest the proceeds in other investment properties.) Biden has proposed raising the capital gains tax rate to 39.6% for people making more than $1 million a year.
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