On August 24, the House cleared budget legislation paving the way for Congress to consider an up to $3.5 trillion human infrastructure package that could pass with only Democratic votes. House committees could begin to consider components of the legislation beginning next month, but it remains unclear whether the package will have to be slimmed down to garner the votes of moderate Democrats.
While the House Ways and Means and Senate Finance Committees have not yet offered revenue offsets, tax increases to pay for the bill are on the table. The Biden Administration has made several proposals that would impact the multifamily industry. NMHC is working to educate policymakers on their ramifications. Last month, NMHC submitted a statement for the record regarding these tax proposals for a House Ways and Means Oversight Subcommittee hearing.
Proposals in play include:
Like-kind Exchanges: The Biden Administration proposes to limit deferral from like-kind exchanges to $500,000 in gains for single filers and $1 million in gains for married filers. NMHC and NAA are working with our real estate partners to lobby Capitol Hill to preserve current law. Notably, the non-binding budget resolution includes an amendment offered by Senator Kennedy to preserve LKEs. NMHC and NAA joined our real estate partners thanking Senator Kennedy for the amendment, which while non-binding, is an encouraging sign regarding maintaining current law.
Capital Gains Tax Rate:The Biden Administration would raise the top capital gains rate to 39.6 percent from 20 percent for taxpayers earning over $1 million. Combined with a separate proposal to asses a 3.8 percent Medicare surtax on all pass-through income, including currently excluded active trade or business capital gains income, the top rate would be 43.4 percent. NMHC and NAA support a meaningful differential between the ordinary income tax rate and the capital gains tax rate to spur entrepreneurial activity.
Taxation of Unrealized Capital Gains at Death: The Biden Administration proposes to tax unrealized capital gains at death. There would be a $2.5 million exclusion per couple taking into account existing rules benefiting the sale of principal residences. Taxpayers owning illiquid assets would be able to pay the tax over a 15-year period. Additional rules would also enable tax deferral until sale to the degree heirs continue to run family-owned businesses. The multifamily industry strongly opposes this proposals. NMHC worked with the Family Business Estate Tax Coalition on an April 2021 EY study showing that the proposal to tax unrealized capital gains at death would cost 80,000 jobs in each of the first 10 years and 100,000 jobs per annum thereafter.
Carried Interest: The Biden Administration would tax carried interest at ordinary income tax rates as opposed to capital gains tax rates under present law. The proposal would apply to taxpayers with taxable incomes exceeding $400,000. We continue to educate lawmakers about the devastating impact this proposal would have on our ability to develop new units and address the multifamily housing shortage. Repeal would be counterproductive in our efforts regarding housing affordability.
- Sharon Wilson Géno Written Testimony on Behalf of the NMHC and NAA to the Senate Committee on Finance Hearing Entitled Tax Policy’s Role in Increasing Affordable Housing Supply for Working Families
- IRS Proposed Regulations Real Estate Letter
- Coalition Letter Regarding EBITDA Standard for Business Interest Deductions
- Estate Tax
- Office Conversion Legislation Introduced in the Senate