With any new presidency and policies, there’s always questions and concerns as to how it will affect our lives. So, as you know, at the end of 2020, it was announced that Joe Biden would be our new president for at least the next 4 years. Today, I want to discuss how exactly some of Biden’s new policies will or could affect real estate investors.
A 1031 Exchange allows investors to defer all capital gains taxes. This is possible by selling a property and investing in another piece of real estate. Then using the proceeds of that sale within a specified period of time. Biden’s plan for “rolling back unproductive and unequal tax breaks for real estate investors with income over $400,000.00” could be hard hitting for certain RE investors.
What Can You Do as a Real Estate Investor?
Investors should consider applying for a real estate professional status if their income is in the 400k+ bracket. This allows them to apply their real estate losses to any other income they may have. Another option would be to consider a ‘small business corporation’ or an S-corp. So, S- corporations do not pay income taxes because they pass their corporate income, credits and deductions through to their shareholders. There may be better tax benefits if registered as an S corp rather than an individual employee. You could pay yourself less than $400,000 annually. But you could still receive large amounts through shareholder distributions.
Tax Credit for First Time Home buyers
Another policy aims towards more affordable housing for first-time home buyers. Biden has spoken about wanting to give a tax credit of 10% of the purchase price of the home up to $15,000. This allows people the capital for a down payment. This policy would aim towards lower and middle-class citizens. Many have had a much harder time at purchasing homes since the demand and prices have substantially increased recently.
So, if this policy gets approved this will mean the seller’s market will go even crazier. Usually when this happens, the interest rates start to increase. So, with the economy still recovering the federal government isn’t likely to allow it. Although the rent demand may decrease as home ownership increases, this could still be advantageous for real estate investors. As these individuals buy homes, it gives them the chance to create and grow equity in their properties allowing them the capital to invest in real estate turn-key properties.
Extension on Eviction Moratorium & Rental Assistance
President Joe Biden has decided to extend the eviction and foreclosure moratorium until June 2021. Originally set to expire on January 31st. Therefore, there is talk that there may be another extension after this one. So, this could affect some investor’s ability to pay the mortgage on their rental properties, there are some relief plans being put in place to help landlords. As stimulus checks and unemployment benefits continue to roll out, landlords and renters could
work out a payment plan that works for both parties.
Biden is also possibly implementing a 30 billion dollar plan for rental assistance. So this will reduce rent and utilities up to 30 percent of the renters income. This allows landlords more income stability. Therefore, 25 billion dollars of this are expected to go to landlords to help pay the mortgage on the property and 5 billion is expected to help cover energy and water costs. Programs such as the Low Income Home Energy Assistance Program, are meant to assist landlords and renters until a more permanent solution is found.
In conclusion, there are always going to be constant legislative changes, some benefitting you and some not. The main point here is that real estate investing still has more tax and other benefits than any other asset class, and this should in no way prevent someone from taking action steps towards becoming an investor. So go ahead and take that jump!