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Perspectives

Explore the impact of real estate legislation proposals

From Biden’s revenue proposals to taxable REIT subsidiary to FIRPTA

Proposed changes to the tax structure could affect the future of real estate. Learn more about the legislative proposals spanning tax rates for ordinary income and capital gains, foreign investment in real property (FIRPTA), real estate investment trusts (REIT), and more in our Real Estate Green Book.

Real estate legislation under consideration

Professionals across the real estate industry are staying closely attuned to legislative proposals that could have a significant effect on the sector. Some of these policy changes are included in President Biden’s American Families Plan, such as revisions to the capital gains tax rate and ordinary income tax rate. Other proposed legislation includes provisions that would affect estate planning decisions, real estate investment trusts (REITs), and foreign investment (FIRPTA). For highlights of the key provisions, potential impact, and proposed effective date, download our Real Estate Green Book.

Real Estate Green Book

Key real estate provisions to watch

Provisions included in proposed legislation that could affect real estate include the following:
  • Like-kind exchanges: Limit the deferral of gains from like-kind exchanges of real property
  • Carried interest: Treat carried interest income as ordinary
  • Capital gains rate: Increase tax rate on tax preferential income
  • Ordinary income rate: Increase top marginal tax rate for individual and fiduciary taxpayers
Other specific legislation under considerations includes:

Parity for Non-Traded REITs Act
H.R. 3123 proposes to make the following changes to FIRPTA for REITs:

Allow publicly offered REITs to benefit from the following FIRPTA exceptions that currently apply only to REITs whose stock is regularly traded on an established securities market:

  • No FIRPTA withholding or tax on gain from the sale of REIT stock by owners of no more than 10% of the applicable case of REIT’s stock during the applicable holding period (lesser of five years or the owner’s holding period in the stock)
  • No FIRPTA withholding or tax on a distribution from a REIT to an owner that held no more than 10% of the applicable class of REIT stock during the one-year period ending on the date of the distribution

The Retail Revitalization Act of 2021
H.R. 840 proposes to make the following changes to the related party rent rules that apply to REITs:

  • Increase the ownership threshold for a related-party tenant from 10% to 50%, which would allow a REIT to own 50% of a tenant
  • Increase certain ownership thresholds required to attribute equity interests to and from corporations and partnerships to 50% for purposes of the constructive ownership rules
  • Increase from 10% to 50% the amount of space a REIT can rent to a taxable REIT subsidiary without generating related-party rent, so long as the rent is comparable to non-related-party rents
  • Eliminate double-down attribution rule for the related-party rent rule

Small Business Tax Fairness Act
S. 2387 proposes to make the following changes to the deduction section 199A:

  • Phase out the deduction for individuals earning more than $400,000, and no deduction allowed for individuals with taxable income of $500,000 or more
  • Treat specified service trades or businesses (e.g., the businesses engaged investing and investment management) as qualified trades or businesses
  • Eliminate the limitations based on W-2 wages and the unadjusted basis immediately after acquisition of qualified property
  • Eliminate deduction for trusts and estates
  • REITs
  • Subject to the phase-out, qualified REIT dividends continue to qualify for the deduction
  • Dividends of regulated investment companies (e.g., mutual funds) eligible for the deduction to the extent attributable to qualified REIT dividends and other qualified trades or businesses

Get ahead of potential real estate legislation challenges

If you’d like to talk more about the proposed real estate legislation and what its changes mean for your organization, contact us to set up a conversation.

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