On March 28, 2021, the Biden administration released the fiscal year (FY) 2023 budget of the United States government, which includes:
- the Budget Message of the President,
- information on the president’s priorities, and
- a summary request for fiscal year 2023 discretionary funding.
Budget items of note to the real estate industry are summarized below.
It is important to note that the president’s budget is not law—they are suggestions for Congress. Congress will have its own ideas about appropriate funding levels for the federal government and how to raise the revenue needed to pay for government programs, including any infrastructure proposals that move forward. NAR will continue to educate lawmakers about the importance of investing in housing as critical infrastructure in the U.S.
The U.S. Department of Treasury also released the “General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals,” otherwise known as the “Green Book,” which includes details of tax proposals included in the president’s FY 2023 budget to pay for the various proposals. Similar to last year’s proposals, the Green Book includes several items of particular concern for the real estate industry:
- Limiting the deferral of gain from like-kind exchanges to $500K per taxpayer per year.
- Raising the long-term capital gains tax rate to the same rate paid on ordinary income (i.e., 37%). This top rate would apply to the extent that taxable income exceeds $1 million.
- Taxing carried interests in real estate partnerships as ordinary income instead of long-term capital gains.
- Treating transfers of property upon gift or death as realization events for high-income earners, subject to long-term capital gains tax upon the gift or death of the donor/decedent.
- Raising the top marginal income tax rate for the highest income taxpayers (from 37% to 39.6%). It would apply to taxable income over $450K for joint returns and $400K for singles.
Like the budget, most of the proposals outlined above will need to pass through Congress, where many were previously rejected in the House-passed “Build Back Better” legislation. There were several new provisions also included in the Green Book related to tax depreciation recapture at ordinary income rates and a minimum income tax on the wealthiest taxpayers. The proposal to tax depreciation recapture at ordinary income rates (as high as 39.6%), compared with a top rate of 25% under the current law, would apply to deductions taken in tax years beginning after 2022. There would be exemptions for taxpayers with AGI of less than $400k and special rules for pass-through entities, where the higher tax rate would apply to partners or shareholders with income above $400K. The minimum income tax on the wealthiest taxpayers (“Billionaire Minimum Income Tax”) would apply to households with $100 million or more in wealth, including assets with unrealized gains. This new taxing concept would also apply for tax years after 2022. Tradeable assets (such as public stocks) would be valued at end-of-year market prices. Real estate and other non-tradeable assets would be valued at the greater of original cost or current basis, the most recent valuation event, or other undefined methods.
FY 2023 Budget Summary – Real Estate-Related Provisions
Housing and Urban Development (HUD)
Expansion of the Housing Choice Voucher Program and Enhanced Household Mobility
The budget provides $32.1 billion—an increase of $6.4 billion—to maintain services for all currently assisted families and expands assistance to an additional 200,000 households, including families experiencing homelessness or individuals fleeing gender-based violence. It funds mobility related supportive services to provide low-income families with options to move to other neighborhoods.
Increases Affordable Housing Supply
The budget proposes $2 billion for the HOME Investment Partnerships Program (HOME), an increase of $600 million over the 2021 enacted level, to construct and rehabilitate affordable rental housing and provide homeownership opportunities. Also provides $180 million to support 2,000 units of new permanently affordable housing for the elderly and persons with disabilities. The budget provides $50 billion in mandatory funding and additional low-income housing tax credits to increase affordable housing development and $35 million in HUD funding for state and local housing finance agencies and their partners to provide grants, revolving loan funds, and other streamlined financing tools.
The budget advances efforts to end, prevent, and reduce homelessness by providing $3.6 billion (an increase of $580 million over the 2021 enacted level) for:
- homeless assistance grants to meet renewal needs and expand assistance to nearly 25,000 additional households, including survivors of domestic violence and homeless youth.
Promote Equity by Preventing and Redressing Housing Discrimination
The budget provides $86 million in grants to support state and local fair housing enforcement organizations and to further education, outreach, and training on rights and responsibilities under federal fair housing laws. The budget invests in HUD staff and operation’s capacity to deliver on the president’s housing priorities, which includes:
- lifting barriers that restrict housing and neighborhood choice,
- affirmatively furthering fair housing, and
- providing redress to those who have experienced housing discrimination.
Supports Access to Homeownership
The budget supports access to homeownership for underserved borrowers, including many first-time and minority home buyers through the Federal Housing Administration (FHA) and Fannie Mae credit guarantees. The budget provides $115 million for complimentary loan and down payment assistance pilot proposals to expand homeownership opportunities for first-generation and/or low-wealth, first-time home buyers.
Invests in Resilience and Energy Efficiency Across HUD Multifamily Programs
The budget supports multifamily properties with HUD rental assistance and public housing for $2.3 million low-income families. The budget provides $900 million in resources across HUD programs for modernization activities aimed at energy efficiency and resilience to climate change impacts. Investments will help improve the quality of public and HUD-assisted housing while creating high-paying jobs.
Reduces Lead and Other Home Health Hazards for Vulnerable Families
The budget provides $400 million, an increase of $40 million above the 2021 enacted level, for states, local governments, and nonprofits to reduce lead-based paint and other health hazards in the homes of low-income families with young children. This includes $25 million to address lead-based paint in public housing and targets $60 million specifically to prevent and mitigate housing-related health hazards, such as fire safety and mold in HUD-assisted housing.
Supports Economic Development and Invests in Underserved Communities
The budget provides $3.8 billion for the community development block grant program to help communities modernize infrastructure, invest in economic development, create parks and other public amenities, and provide social services. The budget includes $195 million to spur equitable development and the removal of barriers to revitalization in 100 of the most underserved neighborhoods in the U.S.
Investments in Affordable Housing in Tribal Communities
The budget helps to address poor housing conditions in tribal areas by providing $1 billion to fund tribal efforts to expand affordable housing, improve housing conditions and infrastructure, and increase economic opportunities for low-income families. It also includes $150 million to prioritize activities that advance resilience and energy efficiency in housing related projects.
The budget bolsters efforts to end Veteran homelessness with increases in resources for programs to $2.7 billion. Here, the goal is ensuring that every Veteran has permanent, sustainable housing with access to health care and other supportive services to prevent and end Veteran homelessness. The budget also supports VA home loan programs, requesting $284 million for VA housing program administrations to ensure that all eligible Veterans receive maximum benefits and protections as new or existing homeowners. It will also enable the VA to manage record growth in its home loan guaranty volume, which exceeded $860 billion in outstanding principal in 2021.
The budget proposed to expand lending in disadvantaged communities and increase affordable housing supply, with $331 million for the Community Development Financial Institutions (CDFI) Fund, an increase of $61 million (or 23%) above the 2021 enacted level. The budget also provides $5 billion in long-term mandatory funding for CDFI financing of new construction and substantial rehabilitation that creates new units of affordable rental and for-sale housing.
The budget includes a proposal to tax depreciation recapture at ordinary income rates (as high as 39.6%), as compared with a top rate of 25% under the current law. This higher rate would apply only to three deductions taken in tax years beginning after 2022. Taxpayers with an adjusted gross income of less than $400,000 would be exempted from this change. Special rules would apply to pass-through entities so that the higher tax rate would apply to partners or shareholders with income above $400K.
The budget also introduces a minimum income tax on the wealthiest taxpayers (“Billionaire Minimum Income Tax”) that would apply to households with $100 million or more in wealth, which includes assets with unrealized gains, applying for tax years after 2022. Tradeable assets (such as public stocks) would be valued at end-of-year market prices. Real estate and other non-tradeable assets would be valued at the greater of original cost or current basis, the most recent valuation event, or other undefined methods. The purpose of this proposal is to assess a tax to bring minimum amount of income tax to such households to at least 20% of normal taxable income plus unrealized gains (which generally escape immediate taxation under current law). This would be done by applying a “top-up payment” to reach the 20% level. It would apply to built-in, accumulated, unrealized gains owned by a taxpayer at the date of enactment. However, impacted taxpayers may spread initial top-up payments on unrealized income over nine years and then over five years for top-up payments on new income going forward. Owners of illiquid assets, called “illiquid taxpayers” by the proposal, may elect to pay the minimum tax later upon sale, but with interest. Minimum tax payments would be treated as prepayments creditable against subsequent tax liability when capital assets are finally sold and refunds would be available to the extent that prepayments of the tax exceed the long-term capital gains rate times the unrealized gains of the taxpayer.
There are a number of other provisions included such as the following:
- preventing basis shifting by related parties through partnerships;
- making the new markets tax credit permanent to help with affordable housing;
- allowing selective basis boosts for bond-financed low-income housing credit projects to improve financial feasibility; and,
- extending the period for assessment of tax for certain Qualified Opportunity Fund investors.
Housing Counseling Assistance
The budget requests $65.9 million for housing counselling assistance, which will allow the HUD-approved network of 1,600 housing counseling agencies to serve over 1 million consumers, annually, across the nation. Many of these clients are traditionally from marginalized, rural, underserved, and tribal communities that have been most negatively impacted by COVID-19. Funding at this level includes $3.5 million that will be used to continue increasing the participation of historically Black colleges and universities (HBCUs) and minority serving institutions (MSIs) in HUD’s Housing Counseling program.
Transportation and Infrastructure
The budget modernizes U.S. infrastructure through upgrades, repairs, and improvements to the safety and efficiency of the nation’s network of roads and bridges. The budget provides $68.9 billion for the Federal-Aid Highway Program, including the following: $9.4 billion provided by the “Bipartisan Infrastructure Law” for 2023; $8 billion to rebuild the nation’s bridges; $1.4 billion to deploy a nationwide, publicly accessible network of electric vehicle chargers and other alternative fueling infrastructure; $1.3 billion for a new carbon-reduction grant program; and $1.7 billion for a new resiliency grant program to make surface transportation infrastructure more resilient to hazards such as climate change.
Strengthens Climate Resilience
The budget provides $18 billion for climate resilience and adaptation programs across the federal government, including $3.5 billion for the Department of Homeland Security, $5.9 billion at the Department of Interior, $1 billion for HUD, and $376 million for the National Oceanic and Atmospheric Administration (NOAA). These funds would be used to reduce the risk of flood and storm damage, and make HUD-assisted multifamily homes more energy and water efficient. It also includes $507 million combined for the FEMA’s flood map and risk mitigation programs to help communities build resilience against natural disasters. There is also a $3.5 billion legislative proposal to create a targeted means-tested affordability program to offer flood insurance premium assistance based on income or ability to pay, rather than location or date of construction. The budget also maintains funding for conservation and ecosystem management initiatives, accounting for the $1.4 billion investment in the “Bipartisan Infrastructure Law” for ecosystem restoration across the U.S.
Defenses Against Catastrophic Wildfires
The budget provides nearly $3.9 billion for forest service wildland fire management, an increase of $778 million, plus an additional $2.6 billion authorized in the suppression cap adjustment. Consistent with the president’s commitment to use the latest technologies in the fight against wildfires, the budget also permanently sustains a pilot program that leverages sensitive satellite imagery to rapidly detect wildfires. The budget also invests $646 million in hazardous fuels management and burned area rehabilitation programs to help reduce the risk and severity of wildfires and restore lands that were devastated by catastrophic fires over the last several years. This funding complements the $2.5 billion for hazardous fuels management and $650 million for burned area rehabilitation projects provided through the “Bipartisan Infrastructure Law”.
Temporary Payroll Tax Cut Fee Continues
The “Temporary Payroll Tax Cut Continuation Act of 2011” (TPTCCA), which is a 10-basis-point fee that has been added onto every mortgage originated by Fannie Mae, Freddie Mac, and the FHA since 2011, was extended to fund the “2021 Infrastructure Investment and Jobs Act”. The fee will raise nearly $6.2 billion annually through 2026 and be used for non-housing-related expenditures. NAR opposes the use of the fees on home buyers to finance general expenses of the government, especially outside of housing.
The budget provides a $800 million increase in funding from previous the $1.9 billion for the Department of Education, where the funds will be used to implement improvements in student debt servicing that will transition the DOE’s current system from short-term to longer-term contracts.
Capital Magnet Fund and Housing Trust Fund
Federal law provides that a fixed fee is charged on annual mortgage volume financed by Fannie Mae and Freddie Mac. The fee is used to fund the Capital Magnet Fund and the Housing Trust Fund, which provide capital for community development and construction of low-income rental and owner-occupied housing. Annual contributions are forecast to fall from $1.06 billion in 2022 to $451 million by 2026, likely due to rising mortgage rates weighing on refinance and home purchase volumes at the two mortgage giants.
Technology: Broadband, Cybersecurity, & Innovation
The budget provides $600 million for the ReConnect Loan and Grant Program, which provides grants and loans to deploy broadband to unserved areas—especially tribal areas—and $25 million to help rural telecommunications cooperatives refinance their Rural Utilities Service debt and upgrade their broadband facilities. The budget also invests more than $350 million to expand reliable and affordable internet access through the development and deployment of secure digital and technological infrastructure. The budget would improve international cybersecurity practices and promote the adoption of policies that support an open, interoperable, secure, and reliable internet.
To support the Department of Justice’s (DOJ) ability to pursue cyber threats through investments that support a multiyear effort to build cyber investigative capabilities at FBI field divisions nationwide, the budget proposes an additional $52 million for more agents, enhanced response capabilities, and strengthened intelligence collection and analysis capabilities. These investments are in line with the administration’s counter-ransomware strategy that emphasizes disruptive activity and combating the misuse of cryptocurrency.
The budget further provides $880 million for the “Directorate for Technology, Innovation, and Partnerships” within NSF to help translate research into practical applications. The Directorate will work with programs across the agency and with other federal and nonfederal entities to expedite technology development in emerging areas that are crucial for U.S. technological leadership, including trustworthy artificial intelligence, high-performance computing, disaster response and resilience, quantum information systems, robotics, advanced communications technologies, biotechnology, cybersecurity, advanced energy technologies, and materials science.
The budget also includes a $187 million increase for research initiatives at NIST that would focus on developing standards to accelerate adoption of critical and emerging technologies with a focus on artificial intelligence, quantum science, and advanced biotechnologies. As part of this investment, the budget includes an $8 million increase to strengthen U.S. leadership in international standards development for critical and emerging technologies.
Small Business Administration (SBA)
The budget supports underserved entrepreneurs by providing a $31 million increase over the 2021 enacted level to support women, people of color, veterans, and other underserved entrepreneurs through the SBA’s Entrepreneurial Development programs.
The budget also expands access to capital for small businesses by increasing the authorized lending levels in the SBA’s flagship 7(a) loan guarantee program, the 504 Loan Program for fixed assets, small business investment Companies, and the Secondary Market Guarantee Program by a total of $9.5 billion.
The budget proposes to increase corporate transparency and safeguards the financial system by providing $210 million for the Financial Crimes Enforcement Network (FinCEN), which is $83 million above the 2021 enacted level. This increase would improve oversight of the financial sector to strengthen corporate accountability and offer adequate support to law enforcement and investigation entities. The budget also proposes $212 million to the Office of Terrorism and Financial Intelligence—which is $37 million above the 2021 enacted level—to modernize and update the sanctions process consistent with the findings of the Treasury’s “2021 Sanctions Review”.
In order to strengthen enterprise cybersecurity, the budget provides $215 million, an increase of $197 million above the 2021 enacted level to protect and defend sensitive agency systems and information.
Department of Labor (DOL): Unemployment Insurance, Misclassification of Independent Contractors
The president’s budget promises to modernize, protect, and strengthen the Unemployment Insurance (UI) safety net, which helped millions of Americans through periods of unemployment during the COVID-19 pandemic. The budget invests $3.4 billion, an increase of $769 million above the 2021 enacted level, to modernize, protect, and strengthen the program. There are several investments aimed at tackling fraud in the UI program, including funding to support more robust identity verification for UI applicants and to help states develop and test fraud prevention tools and strategies, and allow the DOL Office of Inspector General to increase its investigations into fraud rings targeting the UI program.
The budget also proposes to increase funding to the Wage and Hour Division (WHD) by more than $61 million over the FY 2021 enacted level. This funding increase will enable WHD to aggressively combat worker misclassification to ensure employee protections and benefits.
The budget proposes to promote a fair and efficient immigration system by reducing immigration visa backlogs. The administration is committed to ensuring that United States Citizenship and Immigration Services (USCIS) meets its mission of administering the nation’s lawful immigration system and safeguarding its integrity and promise by efficiently and fairly adjudicating requests for immigration benefits. The budget provides $765 million for the USCIS to efficiently process increasing asylum caseloads, address the immigration application backlog, and improve refugee processing.
Equity and Environmental Justice
The budget provides historic support for underserved communities and advances the President’s “Justice40” commitment to ensure 40 percent of the benefits of federal investments in climate and clean energy reach disadvantaged communities. The budget includes more than $12 million to coordinate implementation of the “Justice40” initiative at impacted agencies. The budget bolsters the Environmental Protection Agency’s (EPA) environment justice efforts by investing over $1.5 billion across numerous programs that would help create good-paying jobs, clean up pollution, implement “Justice40”, advance racial equity, and secure environmental justice for communities that too often have been left behind, including rural and tribal communities.
The budget provides roughly $4 billion for EPA water infrastructure programs, an increase of $1 billion over the 2021 enacted level. This includes full funding of grant programs authorized by the “Drinking Water and Wastewater Infrastructure Act of 2021”, an increase of $160 million over the 2021 enacted for the EPA’s Reducing Lead in Drinking Water grant program. Outside of the EPA, the budget also includes $717 million in direct appropriation and $1.5 billion in loan level for the USDA’s Water and Wastewater Grant and Loan Program. These resources would help upgrade drinking water and wastewater infrastructure nationwide, with a focus on underserved communities that have historically been overlooked.
Conservation and Carbon Sequestration
The budget invests in the administration’s “America the Beautiful” initiative, a multiagency, multijurisdictional ecosystem management effort that would strengthen conservation partnerships between communities and federal partners such as DOI, USDA, and NOAA. The president’s historic goal of conserving and restoring 30 percent of America’s lands and waters by 2030 incentivizes America’s farmers, ranchers, and forest landowners to sequester carbon in soils and vegetation, and support the efforts and visions of states and tribal nations.