Tax Increases Accompany Biden American Families Plan

Last week President Joe Biden unveiled his American Families Plan to provide universal preschool, two years of free community college and a paid family and medical leave program, and to expand the Earned Income Tax Credit and other tax credits. The plan, estimated to cost $1.8 trillion, would be financed primarily through tax increases on investments and high-income earners. Many of the tax increases affect provisions important to commercial real estate. The Biden plan tax proposals would: 

  • Eliminate Section 1031 real estate like-kind exchanges for transactions with gains greater than $500,000.
  • Increase the individual top ordinary income tax rate from 37% to 39.6%.
  • Raise capital gains and dividends rates to 39.6% for households with an annual income in excess of $1 million.  
  • Eliminate capital gains tax treatment on real estate carried interests (also known as “promotes” or “promoted interests”), resulting in an increase from 20% to 39.6% (including the 3.8% net income investment tax, which results in an increase from 23.8% to 43.4%.)
  • Eliminate “stepped-up” basis for the estate tax for gains in excess of $1 million ($2.5 million per couple).  

While the spending proposals are politically popular, many of the tax proposals in the plan will face opposition in Congress, from both Republicans and centrist Democrats. These will be negotiated over the next several months as Congress drafts legislative language to implement many of the provisions in the plan. As policymakers debate the legislation, NAIOP and its real estate allies will work with Congress to preserve tax code features which are conducive to healthy commercial real estate markets.