October 21, 2024 | 2 Minute Read
While both Republicans and Democrats have several key issues on their agendas, one topic that has the attention of many real estate investors is taxes.
When it comes to corporate taxes, the two parties are taking very different approaches. Democrats are pushing for an increase from the current 21% to 28%, while Republicans are advocating for a slight reduction to 20%.
While both Republicans and Democrats have several key issues on their agendas, one topic that has the attention of many real estate investors is taxes.
When it comes to corporate taxes, the two parties are taking very different approaches. Democrats are pushing for an increase from the current 21% to 28%, while Republicans are advocating for a slight reduction to 20%.
For start-up expense deductions, Democrats are aiming to significantly raise the allowable deduction from $5,000 to $50,000, offering more relief for new businesses.
Capital gains tax is also a hot-button issue. Democrats propose increasing the rate from 20% to 28% for individuals earning over $1 million, whereas Republicans want to keep the top rate at 20%. As it stands, capital gains are taxed at 0%, 15%, or 20%, depending on your income bracket.
Income tax changes could also be on the horizon. Democrats propose raising the top rate from 37% to 39.6% for individuals earning over $400,000. Republicans, on the other hand, aim to maintain the current 37% top rate.
The 2025 Sunset Provisions
A significant tax event looms at the end of 2025: the expiration of several provisions from the Tax Cuts and Jobs Act (TCJA), unless Congress intervenes. If these provisions are allowed to “sunset,” here’s what could change:
The top individual income tax rate will revert to 39.6%, up from the current 37%.
The standard deduction will be cut nearly in half from the TCJA’s $12,000 limit.
The corporate tax rate will remain at 21%.
The qualified business income (QBI) deduction for pass-through entities, which allows eligible taxpayers to deduct up to 20% of their QBI, may be eliminated. This also includes deductions for qualified REIT dividends and publicly traded partnership income.
Bonus depreciation on qualified property will gradually phase out.
The $10,000 cap on state and local tax (SALT) deductions could be removed, potentially allowing deductions above that cap for real estate taxes, state and local income taxes, and personal property taxes.
Miscellaneous itemized deductions, which were largely eliminated under the TCJA, could return. This includes deductions for legal and advisory fees.
With these potential tax changes in mind, strategic planning is essential. If tax rates increase, consider accelerating income and capital gains to take advantage of the current lower rates. High-income earners, in particular, may want to realize income now while deferring deductions and losses to future years when tax rates are higher. If you anticipate tax rates will decrease, it may be wise to defer gains and income. Also, with bonus depreciation on the decline, businesses might want to accelerate capital expenditures to maximize deductions under the current rules.
Navigating these decisions can be complex, so it’s essential to consult your accountant and legal advisors to tailor strategies to your specific situation.
May the odds be in your favor…. and don’t forget to vote.