What would a true blue wave in November mean for real estate investors beginning on January 20, 2021? "Should Democrats sweep the House, Senate, and presidency in November's election, there will be major implications for tax policy in general and affordable housing, community development, renewable energy, and historic preservation tax incentives in particular," says a blog post by Michael Novogradac of the San Francisco-based consultancy that bears his name.
Novogradac's blog is a synopsis of a 40-page report his firm released this week titled "Blue Wave Effects: What a Democratic Sweep Could Mean for Affordable Housing, Community Development, and Renewable Energy."
The report examines Democratic priorities through the lens of what candidates have said during Senate campaigns and who would hold key leadership roles in a flipped Senate and retained House.
Tax credits likely to survive in a 'Caring Economy'
While former Vice President Joe Biden has said he would help fund his "Caring Economy" by eliminating some tax breaks investors use to write off losses and defer capital gains, the Novogradac report notes some of these programs have popular support in Congress that would continue under a Democratic majority.
Says the Novogradac blog post: "In a Senate controlled by Democrats in 2021, top committee and leadership positions would likely be held by advocates of key community development and affordable housing provisions, including sponsors and co-sponsors of the Affordable Housing Credit Improvement Act, the New Markets Tax Credit Extension Act, the Historic Tax Credit Growth and Opportunity Act, the Clean Energy for America Act, and the Move America Act." That would mean existing incentives would probably be continued and possibly expanded, as well as increased funding for affordable housing programs.
There's also the Opportunity Zone Program to consider. While included in the Trump administration's 2017 Tax Cuts and Jobs Act, this program has attracted billions in new investments in areas that need it -- a reality that should appeal to both sides of the aisle, despite it being a White House favorite.
Tax hikes for higher-income earners could be in the offing
The Novogradac report looks at possible tax hikes that could follow a blue takeover of the halls of power. For instance, Biden already has proposed increasing the corporate tax rate from 21% to 28% and taxing capital gains as ordinary income for taxpayers who earn $1 million or more a year.
While that would bring in as much as $3.7 trillion by 2030, the Novogradac blog notes, "This higher corporate tax burden could lead to higher tax credit equity prices, even with an increase in the volume of community development tax credits, although the exact effects and timing would depend on multiple cross-cutting factors."
Revived regulations across many spheres
Another big area of change if the Trump era becomes the Biden era would be in the regulatory sphere. For instance, the reach of the Consumer Financial Protection Bureau, an Obama-era centerpiece, was dramatically curtailed in the past four years. Massachusetts Sen. Elizabeth Warren is credited with spearheading its creation. A Biden administration would presumably stoke its revival.
A Democratic administration also would be considered more likely to reimpose environmental controls that could affect developers, for instance, and to not only stop Trump's plan to pluck Fannie Mae and Freddie Mac from conservatorship but turn those government-sponsored enterprises into regulated utilities.
"Funding and administrative oversight would likely see dramatic changes from the Trump administration," the Novogradac post concludes.