You miss 100 percent of the shots you never take, and if you think it’s expensive to hire a professional to do the job, wait until you hire an amateur. FOR OVER 20 YEARS, I HAVE WORKED EXTENSIVELY WITH OWNERS AND BUYERS IN LAND, COMMERCIAL AND INVESTMENT REAL ESTATE IN PHOENIX, TUCSON AND THROUGHOUT ARIZONA. PLEASE LET ME KNOW HOW I CAN HELP YOU. Call me if you want to sell your property and need an estimated value. Phone: 480-948-5554 Prefer cell: 520-975-5207 or email me walterunger@ccim.net. – What is a CCIM. –
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October 25, 2020 Kerri Panchuk, Bisnow Dallas-Fort Worth
Presidential candidate Joe Biden‘s proposal to tax capital gains on inherited real estate could cost commercial real estate investors millions of dollars and significantly undercut profits.
The proposed change would end the process of real estate heirs taking probated property on a stepped-up basis and instead require them to pay capital gains taxes on all appreciation that accrued on the property before their inheritance, according to Erica York, an economist with the Center for Federal Tax Policy at Tax Foundation.
Biden’s plan also would increase the capital gains tax rate for some people, requiring them to pay up to a 43.4% tax rate, she said. The current upper limit is 23.8%.
“Currently, when a person dies and leaves property to an heir, the basis of that property is increased to its fair market value,” York said, describing the “step-up in basis” process that now governs how capital gains are taxed on inherited real estate.
York offered an example. Under existing law, if someone purchased a property when it was valued at $1M and died when it had reached a fair market value of $5M, the owner’s heirs would inherit the property at a stepped-up basis of $5M. As a result, heirs under current law do not have to pay capital gains on the $4M in appreciation that accrued before the original owner’s death, and if they were to sell the property down the road, they would only pay capital gains taxes on any value above $5M.
Biden’s proposed tax plan goes in the opposite direction and would put those heirs on the hook for paying capital gains taxes on the original $4M in appreciation, plus any other profits earned above the current market value once the heir sells the asset. The hit to their profits has the potential to be massive.
Tony Trahan with tax advisory firm KE Andrews out of Dallas-Fort Worth said clients with family trusts, ranches and large swaths of land are starting to get nervous about this plan, particularly if they are older and expect to leave assets to their heirs.
“I think a lot of them are starting to accelerate some of the planning that they may not have done previously, or they may have thought it could wait a couple of years,” Trahan said.
Biden’s plan also would increase the tax rate for some people. Under current law, the top tax rate for capital gains is 20% plus an additional 3.8% net investment income tax for investors above a certain income threshold, York said. That could significantly increase, as Biden proposes taxing gains at ordinary income tax rates for taxpayers with more than $1M in income.
“This would essentially add a fourth tax bracket to the capital gains schedule of 39.6% on income above $1M, meaning the top rate could reach 43.4% when we include the 3.8% net investment income tax,” York said.
There is some misinformation being spread about Biden’s tax plan that is alarming CRE professionals. For example, Eric Toder, co-director of the Urban-Brookings Tax Policy Center at the Urban Institute, has dispelled rumors that all real estate will be taxed at 40% under the Biden plan.
But Toder said there will be changes in how real estate is inherited, particularly when it comes to higher-priced assets and individuals with incomes above $400K.
Numerous exemptions would limit what assets get hit with more capital gains taxes under Biden’s plan, including caveats in the law that protect principal residences and normally priced real estate assets. The first $200K of gains for married couples and $100K for singles would be exempt, Toder said.
It’s unlikely people with middle-class incomes would see a huge change in how capital gains are assessed when inheriting property, he said.
“If your other income, including the capital gains, is less than $400K, then you are not affected by this proposal,” he said.
And for the higher 39.6% proposed capital gains rate to kick in on inherited property, the heir would have to have a total income, including any capital gains, of more than $1M; otherwise, the lower 20% tax rate applies for those with incomes over $400K but under $1M, Toder noted.
Toder also said inheriting parties would get a standard break when offloading a principal residence.
“You have the exemption of current law of the first $250K for singles and $500K of gains for joint [filing couples] for your personal residence, and that exemption would remain in effect.”
But for commercial real estate, where values appreciate rapidly and property values are high, a hefty tax bill is in the cards under the plan, analysts say. For example, a $1M property that appreciates to $5M in value during an owner’s lifetime would end up with a seven-figure tax bill.
There are some unknowns in Biden’s proposal, and how those are worked out could hit commercial real estate heirs even more. For one, it’s unclear if death itself becomes a “taxable event” that forces heirs to pay capital gains taxes on all appreciated value at the time of their inheritance.
A second possibility is the Biden plan may allow heirs to inherit real estate on a carry-over basis, so they only have to pay for the years of appreciation when they sell the asset, not at the time of inheritance. Another option is that heirs could spread their taxes out over time, according to Toder.
“Assuming the former method [of the death itself becoming a taxable event], when the heir received the asset they would owe capital gains tax on the $4M gain at ordinary income tax rates,” York explained. “At a 39.6% statutory rate plus the 3.8% net investment income tax, this would make for a $1.736M tax bill [upon inheritance].”
This is a dramatic difference considering current tax plans only require inheriting parties to pay for profits earned above the current fair market value recorded at the time the heir sells the asset on their own.
The potential impact of this proposed change on owners of commercial real estate is substantial, Trahan said.
“Think about somebody or a family that has held multifamily assets for years and years, and they have doubled or tripled their appreciation,” Trahan said. “The heir that inherited it would have to figure out how to come up with that income tax on something that has tripled, so it’s a difficult thing for sure.”
Contact Kerri Panchuk at panchukkerri@yahoo.com
FROM ME: Now is the time, if you are thinking of selling or purchasing your Land or Commercial Building in Phoenix, Scottsdale, Maricopa County, Pinal County, Arizona / Office / Retail / Industrial / Multi-family / please call me on my cell 520-975-5207 or e-mail me walterunger@ccim.net. Investors and Owner / Users need to really know the market today before making a move. The market has a lot of moving parts. What is going on socio-economically, what is going on demographically, what is going on with location, with competing businesses, with public policy in general — all of these things affect the quality of selling or purchasing your Commercial Properties, Commercial Investment Properties and Commercial and large tracts of Residential Land Therefore, you need a broker, a CCIM (Certified Commercial Investment Member) who is a recognized expert in the commercial and investment real estate industry and who understands your needs. I am marketing my listings on Costar, Loop-net, CCIM, CREXi, Catylist, and various other web sites. I also sold hundreds millions of dollars’ worth of Investment Properties / Owner User Properties in Retail, Office Industrial, Multi-family and Land in Arizona and therefore I am working with brokers, Investors and Developers. I am also a CCIM and through this origination ( www.ccim.com ) I have access to marketing not only in the United States, but also international. Are you ready to sell or purchase your Land or Commercial Building in Phoenix, Scottsdale, Maricopa County and Pinal County, Arizona, please call me?
Click here to find out what is a CCIM: https://en.wikipedia.org/wiki/CCIM
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http://walter-unger.com/gold-canyon-resort-sells-for-29-4m/
Walter Unger CCIM
Associate Broker
West USA Commercial Division
7077 E MARILYN RD.
Suite 200, Building 4.
Scottsdale AZ, 85254
Phone: 480-948-5554
Cell: 520-975-5207
History of Arizona from 900 BC – 2017 -Timeline.
History of Arizona from 900 BC – 2017 -Timeline.
History of Arizona from 900 BC – 2017 -Timeline.
WHY PHOENIX? AMAZING!!! POPULATION IN 1950 – 350 K PEOPLE; “NOW 5 MIL”. – “5TH. BIGGEST CITY IN USA”
- DEMOGRAPHIC FACTS ABOUT MARICOPA COUNTY:
Walter Unger CCIM – walterunger@ccim.net – 1-520-975-5207 – http://walter-unger.com
Timeline of Phoenix, Arizona history
Facts of Arizona – year 1848 to 2013
CLICK HERE: Arizona Opportunity Zones As We Understand /maps. Interested!!! Please contact me.
Feel free to contact Walter regarding any of these stories, the current market, distressed commercial real estate opportunities and needs, your property or your Investment Needs for Comercial Properties in Phoenix, Tucson, Arizona.
Walter Unger CCIM
Associate Broker
West USA Commercial Division
7077 E MARILYN RD.
Suite 200, Building 4.
Scottsdale AZ, 85254
Phone: 480-948-5554
Cell: 520-975-5207
FOR OVER 20 YEARS, I HAVE WORKED EXTENSIVELY WITH OWNERS AND BUYERS IN LAND, COMMERCIAL AND INVESTMENT REAL ESTATE IN PHOENIX, TUCSON AND THROUGHOUT ARIZONA. PLEASE LET ME KNOW HOW I CAN HELP YOU PLEASE CALL ME
CLICK HERE TO VIEW ALL MY 60 MIL WORTH OF LISTINGS.
https://www.crexi.com/properties?searchBrokerId=17513
Also Call me if you need an estimated value of your Property.
Call me if you want to see a map with what is in the Construction Pipeline for Apartments.
Prefer cell: 520-975-5207, or email me walterunger@ccim.net. CLICK HERE TO VIEW ALL MY LISTINGS.
Check out my professional profile and connect with me on LinkedIn.
Walter Unger CCIM, CCSS, CCLS
I am a successful Commercial / Investment Real Estate Broker in Arizona now for 20 years. If you have any questions about Commercial / Investment Properties in Phoenix or Commercial / Investment Properties in Arizona, I will gladly sit down with you and share my expertise and my professional opinion with you. I am also in this to make money therefore it will be a win-win situation for all of us.
Please reply by e-mail walterunger@ccim.net or call me on my cell 520-975-5207
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