Update on Tax Increase Proposals from Ways and Means Committee REALTOR of the Year

Update on Tax Increase Proposals from Ways and Means Committee

Evan Liddiard National Association of REALTORS® Washington DC

House Ways and Means Committee Chairman Richard Neal (D-MA) released to the public the starting point documents that outline the tax increase provisions the Committee will consider in their markup session, which started today and will run through Wednesday. This is part of the congressional action to put into bill form the infrastructure legislation that was set up by the budget resolution that was passed by thin margins in both the House and Senate last month. That resolution allows for filibuster-proof legislation that spends up to $3.5 trillion (over ten years) on human infrastructure items, including health, education, climate change, and economic security. The Ways and Means Committee bears the brunt of finding ways to offset this spending in the House. The markup session has been widely anticipated as one of the final committee steps before the House Budget Committee packages all the different parts of the legislation into one gargantuan bill that could come to the House floor for a vote toward the end of the month.

NAR’s Advocacy Group has been watching for the details that might emerge as ways to pay for the enormous cost of this legislation. Earlier this year, the Biden White House put forward a number of suggested ways to offset the cost, and some of these, if enacted, could greatly harm the real estate sector and investment in real property. NAR has had hundreds of meetings with Members of Congress and sent many letters, alone and in conjunction with coalition partners, outlin-

“While it is still too early to say that the real estate sector has dodged a bullet on these tax increases, the early signs are very good compared to what might have been included in the bill”

ing our concerns with many of these tax increase ideas and the impact they could have on the already troubled commercial real estate sector. While there was a half dozen or so specific tax increase proposals on President Biden’s list of suggested offsets that would directly impact real estate investment, we identified three that were of the most concern to our members and their clients, as follows: Limitations on 1031 like-kind exchanges. • A doubling of the top rate on capital gains taxes for higher-income individuals. • A proposal to tax the unrealized gains of capital assets upon the death of owners with such assets above a certain threshold. Because of the dire results that could occur should these tax increase proposals be enacted, most of the focus of NAR’s lobbyists has been on educating Members of Congress on why these are bad ideas for our nation, its economy, afford-

able housing, family businesses and farms and ranches, and on real property ownership in particular. However, we also weighed in against some of the other offset proposals that would be counterproductive to economic growth and job creation and move the nation in the wrong direction. These included: • Proposals to change the taxation of income from carried interest investments, which are often used by real estate developers and to limit the tax deduction for qualified business income for entrepreneurs and owners of pass-through entities, such as limited liability companies, S corporations, and partnerships. When the Ways and Means base list of tax increase proposals was released yesterday, we were greatly relieved to see that many of the worst of them were not included. For example, the changes to 1031 like-kind exchanges were left out of the draft bill altogether. And so was the proposal to effectively repeal the step-up in basis by taxing unrealized capital gains at death. These are huge preliminary victories. Also, some of the other proposals of concern were included but drafted in a way to be much less harmful than had been originally proposed. For instance: • The capital gains tax increase proposal was modified to be increased only to 25% maximum rate, instead of 39.6%. • Also, the change in tax treatment for carried interest largely exempts real estate investment. • The limitation on the deduction of qualified business income was included, but at thresholds far higher than had been proposed by

President Biden. Far fewer NAR members would be impacted. While it is still too early to say that the real estate sector has dodged a bullet on these tax increases, the early signs are very good compared to what might have been included in the bill. The Ways and Means Committee could make changes to the draft bill, and there could be further changes on the House floor. Then, assuming the bill is approved by the full House, it will have to be conferenced with the bill the Senate develops, which could include different tax increase provisions, some of which could harm real estate investment. Due to the on-going negotiations as the bill progresses through the House and Senate, we cannot and will not relax our efforts. Indeed, a limited Call for Action is continuing this week where NAR’s Federal Political Coordinators (FPCs) are reaching out to key Members of the House Ways and Means and Senate Finance Committees to ensure we protect tax incentives for real estate investment. That said, the early signs indicate very good news in that many of our largest concerns have been heard.