Presumptive Democratic nominee for president Joe Biden plans to finance an ambitious list of family care and other social benefits by eliminating some tax breaks used by real estate investors to write off losses and defer capital gains.
"The plan will cost $775 billion over 10 years and will be paid for by rolling back unproductive and unequal tax breaks for real estate investors with incomes over $400,000 and taking steps to increase tax compliance for high-income earners," the former vice president's campaign says this week in the "The Biden Plan for Mobilizing American Talent and Heart to Create a 21st Century Caregiving and Education Workforce."
The document outlining what has been dubbed "a caring economy" was released Tuesday and did not go beyond the statement above. But Bloomberg News reported that "a Biden administration would take aim at so-called like-kind exchanges, which allow investors to defer paying taxes on the sale of real estate if the capital gains are reinvested in another property. The official also said they would prevent investors from using real estate losses to lower their income tax bills."
In a live appearance Tuesday, Biden added that the proposed boosts to childcare and elder care in the U.S. could be paid for by rolling back some of the "unproductive tax cuts for real estate investors" created by the 2017 JOBS Act. That could potentially make a target of the opportunity zone program, as well.
Like-kind exchanges, such as 1031 exchanges, have been around for decades and are used to defer capital gains, sometimes permanently, by selling one property and exchanging the proceeds for another.
Real Estate Roundtable cites potential social harm
Eliminating that investment incentive would in fact economically hurt already distressed communities that benefit from like-kind exchanges, the Real Estate Roundtable says in a report posted today by the National Real Estate Investor.
"The long-standing like-kind exchange tax law has encouraged investment in affordable housing and other properties, generated state and local tax revenue, and spurred new jobs through labor-intensive property improvements," says Jeffrey DeBoer, president and CEO of the nonprofit public policy group.
DeBoer says exchanges provide opportunity to "cash-strapped minority, women, and veteran-owned businesses to grow their business by temporarily deferring tax on the reinvested proceeds."
Their ability to reduce the need for outside financing for such businesses is "particularly important during economic downturns when access to capital is less certain," DeBoer says. He says his group would support congressional review of like-kind exchanges and "sensible reforms" that would "preserve and maintain the provision's broad-based economic benefits."