ShareOn 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.
