THE DELEON INSIGHT
PROPOSED CHANGES TO U.S. TAX POLICY THAT COULD IMPACT SILICON VALLEY REAL ESTATE By Michael Repka, Esq. LL.M. (Taxation) NYU School of Law
Whenever there is a change in administration, there is an inherent uncertainty related to tax policy. Fortunately, during the presidential campaign, nowPresident Joe Biden laid out a pretty clear blueprint for his tax proposals. Although it is inevitable that there will be negotiation, compromise, and changes that alter the legislation ultimately enacted, this article will delve into some of the proposed changes that could impact Silicon Valley real estate. Increase to Capital Gains Tax Rates Without question, the biggest proposed tax change that could impact Silicon Valley real estate is the proposal to increase the federal capital gains tax rate from 20% to 39.6%. As proposed, this change would only impact taxpayers with adjusted gross income (“AGI”) in excess of $1 million. However, one should note that the gain on the property being sold will likely be included when applying this $1 million limit. As such, a couple who is making $800,000 a year in combined
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income from their jobs and other investments may be lulled into a false sense of comfort because their income is less than $1 million. However, if they have a hypothetical taxable gain of $900,000 on the sale of their home, that $900,000 would have to be added to their $800,000 in other income, thus pushing them well beyond the million dollar threshold. Likely Impact on Silicon Valley If this tax change is enacted, it is likely that some homeowners will rush to sell before the effective date. Although it is impossible to know when this change will become effective, it is unlikely that it will be retroactive to the beginning of 2021 despite the fact that the prohibition against ex-post facto laws has been determined not to apply to tax changes. It is my prediction that the harshness of enacting a law retroactive to sales that were consummated prior to the date the legislation was passed will be enough to make it untenable to legislators.
