Biden Budget Proposal Could Negatively Impact CRE

On March 11, President Biden released his Administration’s budget request for the 2025 fiscal year. It proposes a number of tax changes that could negatively affect the commercial real estate sector. 

The release signals the beginning of a critical 18+ month period with respect to tax debates in Washington, DC. It is important to note that large portions of the 2017 Tax Cuts and Jobs Act (TCJA) expire at the end of 2025. To avert a substantial tax increase on individuals and small businesses, it will be up to Congress decide which, if any, of the President’s proposals to enact:

• The Administration proposes significant changes to Like-Kind Exchanges, capping the ability to defer gains at $500,000 annually per taxpayer ($1 million for married individuals filing jointly). This would effectively kill the ability to use LKEs for commercial property. The budget would also eliminate capital gains treatment for “the promote”/Carried Interest if the partner’s taxable income exceeds $400,000.  It also recommends taxing the recapture of depreciation deductions as ordinary income for high-income taxpayers, instead of the current 25% rate.
• The budget is silent on extending the 20% pass-through deduction (section 199A). The deduction is set to expire at the end of 2025. It is used by many real estate-related businesses, including real estate partnerships, brokerages, architect and engineering firms and REITs. 
• The budget proposes a number of other tax increases for high-income individuals that would impact the economics of commercial real estate. Those include taxing capital gains at ordinary rates, ending step-up basis and taxing transfers of over $5 million at death, and making changes to grantor trusts.

ICSC members discussed several of these issues with members of Congress during last week’s Federal Fly-In, but we must remain diligent in our efforts to educate members of Congress on the importance of these provisions to economic development in their own communities.

For more information on how you can help, please contact Phillips Hinch, vice president of Tax Policy for ICSC at phinch@icsc.com. To support ICSC PAC, please contact Alyssa Rose, director of Political Affairs & Grassroots at arose@icsc.com.