SHARE THIS ARTICLE:

Joe Biden’s tax plan is creating concern that it could hamper efforts to address the critical shortage of affordable housing across California.

At issue is a provision that would make it more expensive for many developers to invest in apartments and other commercial projects.

The proposal from the former vice president and Democratic presidential nominee would eliminate a tax option that encourages property owners to reinvest sales  proceeds back into the market to help grow the economy.

Exchanges Stimulate Local Economic Activity

Known as 1031 exchanges (named for its section in the tax code) — also called like-kind exchanges — the process allows for deferring capital gains taxes on the sale of an investment property as long as the proceeds are used to purchase another business oriented property.

For instance, an investor today can sell off a warehouse to fund the purchase of an apartment complex. Instead of being taxed on the increased value of the warehouse when it’s sold, the investor can apply 100% of the money generated from the sale toward the newly purchased property. Advocates say the tax saving strategy stimulates real estate transactions and provides a variety of economic benefits to a community.

Strategy Can Lead to More Housing

Among other outcomes, investors can use these exchanges to help fund the development or rehabilitation of apartment complexes to increase housing supply.

Biden’s plan to remove the ‘like kind’ tax deferral option could raise billions in revenue for the treasury. But, a Fresno developer and a tax expert both say it could reduce local investment activity.

Valley Developer Concerned About Impact

Levon Baladjanian, president of local property management firm GSF Properties, is concerned what a 1031 rollback could mean.

“In general, 1031 exchanges are valuable as they increase the transactional activity when properties become unwanted by owners who decide to move into another sector of the market,” Baladjanian said via email.

“Also, for newer investors some properties would not come up for sale as often if there was not the ability to move your equity into another piece of real estate.  Assuming the exchange is done properly there is usually no tax implication which is why it is attractive.  Take that away and the market would have less transactions, in theory.”

(Source: Federation of Exchange Accommodators)

Tax Expert: Change Could “Dampen” Real Estate Investment

Thornton Matheson, senior fellow with the Urban-Brookings Tax Policy Center, helped analyzed Biden’s proposal with her team.

“There likely would be some dampening effect on  investment.” — Thornton Matheson, Urban-Brookings Tax Policy Center

“Biden would increase income and payroll taxes on high-income individuals and increase income taxes on corporations. He would increase federal revenues by $4.0 trillion over the next decade. Under his plan, the highest-income households would see substantially larger tax increases than households in other income groups, both in dollar amounts and as a share of their incomes,” the report summarized.

Biden’s termination of 1031 exchanges would apply to investors with incomes of $400,000 or greater.

“Much of the impact of eliminating the exchange option falls on non-corporate customers,” Thornton said.

Thornton says Biden’s plan could hurt the industry. “There likely would be some dampening effect on  investment,” she said.

She acknowledges, though, that some critics feel the tax-free exchange strategy is abused.

Eliminating Option Could Bring In $14B a Year in Tax Revenue

Thornton estimates repealing 1031 exchanges could raise $14 billion a year.

It is part of Biden’s plan to raise $775 billion in revenues over 10 years to help fund his programs such as child care and the elderly.

Where Do Congressional Candidates Stand on Tax Plans?

When it comes to the tax plans of President Donald Trump and former vice president Joe Biden, members of the local congressional delegation — and those hoping to replace them — are taking partisan sides.

GV Wire℠ surveyed several congressional candidates about their thoughts on the Trump and Biden tax plans.

Five of the six who are running in a district that includes Fresno County replied. Congressman Devin Nunes (R-Tualre) was the only holdout.

Official U.S. House portrait of Rep. Jim Costa

 

Jim Costa (D), 16th Congressional District (Incumbent)

“As businesses and families are currently faced with the economic impact of the pandemic that is where my focus is now.  It will be long after the election before we have a clear vision of an appropriate tax plan that will meet the needs of the Valley and our Nation.”

 

Kevin Cookingham (R), 16th Congressional District (Challenger)

“The Trump Tax Plan has some very beneficial changes for the average American. Top tax rates were dropped by 1% to 4% depending on the tax bracket. The standard deduction for couples increased from $12,700 to $24,000 and for singles from $6,350 to $12,000.

On the negative side, those living in high tax states such as California, New York and Illinois, now have a cap on the amount one can write off for state and local property taxes. The limit is now $10,000. When this went into effect, we had a mountain cabin and were paying more than $10,000 per year on property taxes so this part of the tax law hurt us. Overall, we came out ahead but we were a bit frustrated with the cap on real estate deductions for taxes.

I have heard from the left for years that the rich need to pay their fair share of taxes.  The IRS states that the top one percent of earners pay more taxes than the lower ninety percent combined.  I believe that is more than their fair share.  Also, the more the corporations pay in taxes, the less employees they can hire. I would much rather they pay less in taxes and provide a living wage to more Americans.”

For Cookingham’s full response, click here.

TJ Cox (D), 21st Congressional District (Incumbent)

“A Joe Biden presidency will value work. The Trump presidency values wealth. Joe Biden’s tax plan does something that’s been long overdue: ensure that wealthy investors and corporations pay the same rate on their income as workers pay on their wages and salaries. And most importantly, the Biden plan reinvests that money into infrastructure, which is critical for the Central Valley, because we badly need more jobs and better infrastructure.”

David Valadao (R), 21st Congressional District (Challenger)

“America needs a tax code that is fair to workers and small businesses, encourages innovation and investment, but more than anything, allows Americans to keep more of their hard earned money.  I’m concerned that Vice President Biden’s plan aims to raise trillions of dollars of taxes while Americans are still regaining their footing from an economic crisis brought on by COVID-19.  We need to be helping workers with extended unemployment benefits and provide assistance to our ailing service industries, not raise taxes.”

Phil Arballo - 22nd Congressional District (Challenger)

“The bottom line is that the Trump tax plan which Devin Nunes supports will time and time again leave hardworking valley families behind. We’ve seen this playbook in action before and the results speak for themselves — billions of dollars more for the richest corporations and top 1%, and nothing for hardworking families.

What we need is a tax plan that puts partisan politics aside and helps those who need it most. What does that look like in the Valley? A plan that provides relief to low-income workers, small business owners, and working families, all of whom have taken the brunt of the economic blowback from the pandemic while the wealthy have gone unscathed. That is what I will fight for when I get to Congress.”

One Response

  1. AliDun

    Sounds like Biden’s plan will stall economic activity, which by its nature strong economic activity helps all workers. By stalling the economy you will hurt the very people you claim to want to help. The economic engine under Trump’s plan helps all Americans without discrimination. Biden’s plan is furthering the class war that is playing out today; don’t be fooled, it’s not a race war.

    Rather than encouraging the pursuit of happiness and hard work, Biden is encouraging wealth redistribution and entitlement. If our government truly cared about the poor working class, it would not be spreading fear and division among our Nation’s great people and allow all of the states to open up for business. Let people go back to work then you’ll see an increase in tax revenue.

    Reply

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

We've got issues, and we're willing to share
(but only if you want them in your inbox).