New Tax Bill

The New Tax Bill And How It Could Impact Real Estate

The “Build Back Better” plan initially proposed up to $3.5 trillion in spending.- New Tax Bill

This figure has since been scaled back to $1.75 trillion. The new tax bill cut out a lot of items. However, many items such as universal free pre-k for 3- and 4-year-olds still remain, as does $555 billion in spending on climate initiatives, in addition to many other items for infrastructure, education, immigration, etc.

The proposed taxes to help pay for the plan are:

• 1% tax on stock buybacks.

• 15% tax on foreign profits for U.S. corporations.

• 15% tax for large corporations with profits of over $1 billion to shareholders.

• A surtax of 5% of income over $10 million and 3% of income over $25 million on the top 0.02% of the wealthiest Americans.

What This Means For Those In Real Estate

If you are a wealthy American, then all of these tax hikes on the wealthy and on corporations might concern you. But, there are several pieces of good news that have resulted from the bill being revised. The first of these is the fact the proposed limitation on IRA investing in real estate is gone. This is positive for the real estate industry because it means that it will not experience a loss of investment capital that would have happened if the proposed limitation on IRA investing in real estate was not cut out of the bill.

Many people prefer to invest substantial amounts of their IRA into real estate due to the tendency of the real estate market to go up over time and provide stable returns compared to other asset classes. So, people who prefer to invest in real estate for their IRAs will not be subject to any new real estate investing limitations that could force them to change their IRA real estate investing strategies. The next piece of good news is that the proposed limitation to cut the estate tax exemption amount in half and modify valuation discounts all to limit tax-free wealth transfers has also been cut out. As one Forbes contributor explained, the current rules allow for a step up in basis upon death, meaning a property that has appreciated steps up to the fair market value at the time of the owner’s death. The proposed rule that was cut would have mandated that the heirs take on or “carry over” the basis of the descendent. Death would have been made a transaction.

So, in other words, having this proposed tax rule cut out of the new bill could save people an incredible amount of money when they inherit assets and prevent them from paying as high in taxes.

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