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Tax Issues

Breaking down the new tax policies.

The latest Biden Administration infrastructure proposals call for increased taxes to offset the cost of new, expanded programs. ICSC is supportive of these goals; however, we are very concerned that the suggested revenue raisers will fall squarely on retail real estate and other businesses and discourage long-term investment.

Retail real estate was one of the hardest hit sectors by COVID-19. The commercial real estate sector would be negatively impacted by many of the American Families Plan tax provisions, such as ending carried interest, limiting like-kind exchanges and repealing stepped-up in basis for inherited assets. Revenue for infrastructure should be broad-based and not single out a particular industry for punitive treatment. 

Proposed Tax Provisions:

Protecting the capital gains treatment of carried interest

  • This issue has been cast as going after hedge funds and private equity managers, but more than half of all partnerships are real estate related.  
  • Developers take on real and substantial financial risk, including recourse on debt, potential lawsuits, unforeseen environmental remediation and meeting tenancy guarantees.
  • Carried interest is not guaranteed. Developers must first pay their investors (limited partners) a guaranteed rate of return. Only if the project is a success and after the investors have been paid will the developer receive a carry.
  • A tax increase on carried interest would discourage capital from flowing to lower-income areas that come with higher risk. These underserved areas — both urban and rural — are where many in the private and public sectors want to focus.
  • Many family businesses that have been in existence for decades would lose their capital gains treatment, potentially devaluing existing properties.

ICSC opposes legislation to tax carried interest as ordinary income. The retail real estate sector is struggling from the impact of COVID-19. Congress should promote economic growth, not penalize entrepreneurs trying to make our communities better.

Keeping Section 1031 of the tax code (Like-Kind Exchanges)

  • LKEs have been part of the tax code since 1921 and were retained for real estate transaction in the tax reform law.
  • Like-Kind Exchanges support 568,000 jobs and generate $27.5 billion of labor income each year according to research conducted by Ernst & Young.
  • Repealing or limiting section 1031 would reduce the exchange of properties, which generate local transfer and recording fees and trigger property reassessments that increase the local tax base.

ICSC is in favor of preserving Section 1031 (LKEs) to support the efficient deployment of capital and spur capital expenditure that create local jobs, protect property values, generate state and local tax revenue, lower rents and reduce risk in the economy through less leverage. In addition to supporting healthy commercial real estate markets, LKEs are important to farmers and ranchers as well as land conservation efforts. 

Preserving the Stepped-Up Basis

  • The American Families Plan proposes to tax unrealized capital gains at death. This would be in addition to the current estate tax of 40 percent above the 11.7 million exemption. Together, that would be a combined rate of over 60 percent.
  • Repealing stepped-up basis would be a new and large administrative burden on nearly every American family and small business. Many family-owned businesses would struggle to pay the tax from their ongoing operations and would be forced to liquidate.
  • EY study found that repeal of stepped-up basis would reduce wages by $32 for every $100 in new taxes collected and eliminate 80,000 jobs per year.

ICSC opposes removing the stepped-up basis.

A deeper look at the tax provisions:

Carried Interest

Learn more about the Carried Interest tax provision, and why ICSC is against this proposal here

Like-Kind Exchanges

Learn more about Like-Kind Exchanges (LKEs), and why ICSC supports this proposal, here.

Stepped-Up Basis

Learn more about the Stepped-Up Basis and why ICSC wants to preserve it here.

Learn More About the Congressional Tax Writing Committee Members: 

House Ways and Means Committee 

Senate Finance Committee 

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