On today’s show we’re talking about the tax changes that could affect real estate investors following the US election. The 2017 changes to the tax code brought a number of new initiatives that were very beneficial to real estate investors. Top of the list were three changes.
1) Bonus Depreciation
2) Opportunity Zones
3) Step up in basis
Robert Kiyosaki’s Rich Dad advisor on accounting is Tom Wheelright. Tom has is the author of the best selling book called Tax Free Wealth. It’s newly updated and current to the tax code changes as of 2018. Tom has taken the time to read through the proposals from the Biden campaign to understand what they could mean for real estate investors. Tom’s analysis is that each of these moves would be bad for real estate investors. We should be moving to take advantage of them in 2020 while we still can.
Of course we don’t know for sure what the new administration will do. What was promised during the election campaign may or may not be implemented in practice.
The Biden campaign vowed to reverse the Trump tax changes and go a step further by eliminating the sheltering of capital gains under section 1031 of the tax code, the so-called 1031 tax deferred exchange. But even if bonus depreciation gets cancelled, 1031 gets cancelled, and step up in basis gets cancelled, there is a good chance that opportunity zones would survive. According to a new report in the industry magazine called “Accounting Today”, there is an article that sheds some light on the creation of the opportunity zone concept.
One of Biden’s top economic advisers co-wrote the white paper that led to their creation. Vice President elect, Kamala Harris, has pointed to Opportunity zones as a way to spur entrepreneurship. And their campaign website listed ways of reforming, rather than repealing, the policy.
Steve Glickman, is a former Obama administration official who pushed for the incentives. He now runs a consulting firm called Develop Advisors, specifically for investors looking to create opportunity zone funds. Steve used to be the leader of the Economic Innovation Group, a bipartisan Washington based research and policy organization. When he was at EIG, he was the architect and EIG conceptualized the program and drafted the underlying legislation. It was cosponsored by Tim Scott from South Carolina and Cory Booker, a Democratic Senator from New Jersey.
Last month, the Government accountability office issued a 28 page report on Opportunity zones. In that paper GAO is identifying two matters for congressional consideration, including that Congress consider providing Treasury with authority and responsibility to collect data and report on OZ’s performance, in collaboration with other agencies. As part of that deliberation, Congress should also consider identifying questions about OZ’s effects that it wants Treasury to address in order to help guide data collection and reporting of performance, including outcomes.
enator Scott has said his top priority is adding reporting requirements. A bill he introduced in December would direct the Treasury to post data annually on investment funds claiming the breaks, and to track job growth, poverty reduction and other economic indicators at five-year intervals. Oregon Senator Ron Wyden, the top Democrat on the Senate Finance Committee, proposed a reporting bill with lots of other restrictions attached.
It’s possible that we may see a re-assignment of opportunity zones.
Critics have taken issue with the selection of certain zones, such as a trendy arts district in Los Angeles and swaths of Brooklyn. And some have suggested replacing those that don’t meet traditional ideas of struggling neighborhoods with zones that do.