After months of planning, House Democrats officially released a list of tax proposals this week to fund President Joe Biden’s $3.5 trillion human infrastructure plan.
The House Ways and Means Committee passed the proposals on a nearly party-line vote, but they still need approval from the full House and Senate, which is far from assured. Further changes are likely to the tax provisions and the broader plan as the bill works through Congress.
“This is round one,” says Shannon McGahn, chief advocacy officer for the National Association of REALTORS®. “But this is also the first time we have official legislative proposals on paper. If you go as far back as the 2020 election, some of the ideas floated could have decimated the real estate sector and economy. This week’s proposals are a sign that our long-term efforts to educate lawmakers on the counterproductive consequences that increased real estate taxes will have on housing affordability and accessibility are making an impact.”
Though the measure includes provisions to increase the corporate and top individual income tax rates—as well as a 5-percentage-point increase on the capital gains tax rate for higher-income individuals—the bill doesn’t include a repeal or limit of the 1031 like-kind exchange, taxation of unrealized capital gains upon death or gifting by the owner, or repeal of step-up in basis.
“These were the three biggest tax issues for real estate. Last week, our FPCs reached out to members of the Ways and Means Committee to convey again how these changes would harm the commercial real estate sector and suppress the availability of affordable housing. We are pleased lawmakers included none of these provisions,” McGahn says. “This early victory doesn’t mean we accept the measure in full. There are still some items of concern, but based on what was on the table, this is a very positive outcome so far.
“Most of this week’s proposals focus on taxing wealthy individuals and corporations but not real estate specifically. For more than a year, we have educated lawmakers on how new and higher taxes on real estate would harm the overall economy and individuals,” McGahn continues. “Real estate makes up nearly one-fifth of the entire economy. It would do irreparable harm to target new taxes on this economic pillar that is the primary way the American middle class builds intergenerational wealth.”