What does a Biden Presidency mean for real estate? | Bay Area Real Estate Tip #30

Every Tuesday, I go into detail about a question I frequently get asked. This week, I'm going to how a Biden Presidency will affect real estate.

Before we dive in, it’s important to understand the general plan before understanding what the impacts are. However, it’s not certain that these plans can be implemented given the Democrats do not have full control of the government. Given what we have seen of the current Senate race,

my bet is that it will remain neutral and we will not have a blue wave which would limit what Biden can potentially do. However, let’s go through the items that may impact the market. Here are the fundamental principles for housing. The main things he will be focused on is creating more housing, subsidies for low income individuals, having more energy efficient and resilient homes. What does this mean for Bay Area owners, renters, and investors?

Here are the main impacts: This is primarily for investors. Biden plans to eliminate 1031 exchanges. What is a 1031 exchange? A 1031 Exchange is where a landlord can exchange an investment property to a like-kind property deferring any sort of taxes on the gains. It’s a common strategy for people to be able to trade up or diversify to different properties. For example, someone owning a single family rental can trade up to a large multifamily unit somewhere else without paying taxes. Alternatively, someone owning a single family in the bay area can sell to buy multiple single family homes somewhere else. This ability causes more activity in the real estate market otherwise people have to strongly consider their alternatives if they were to have a capital gains tax implication.

Now, what is a common strategy of deferring taxes? It’s pairing this up with the step up in basis tax policy. When people inherit assets after death of a friend or a relative, all those supposed gains are wiped out and the new person that inherits this home has their baselined adjusted. Let’s take an example. If a family bought a home 10 years ago for 100,000 and today it’s worth $200,000. If he passes away, the family can inherit the home and if they choose to sell it and it sells for $200,000, there is no tax on it since their stepped up basis is $200,000. I personally don’t see this as a bad thing but it’s up for discussion!

This is the one that will hurt the wealthiest the most. Biden wants to tax long term capital gains as ordinary income for taxpayers with more than $1M in annual income. Right now, profits from the sale of assets you’ve owed for a year and a day are at either 15 or 20% depending on your income threshold. Biden proposes raising the top rate to 39.6% for the highest earners which is intense! This is not just for real estate but also for stocks which would surely hurt the stock market and real estate market. It’ll be very difficult for anyone to consider selling a home especially in the Bay Area. If you thought it was low inventory now, imagine that kind of effect.

What are the positives for homebuyers? He will provide a stimulus for first time home buyers by creating a $15,000 refundable advanceable tax credit. The last time this was in place was when the government provided $8,000 checks in 2009 to boost the housing market. It had a strong impact at that time to boost confidence so it’s going to be really interesting to motivate people to go from rentals to ownership even faster.

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My Background: Born and raised in the Bay Area, I spent 11 years as Technology Sales Manager before becoming a Realtor. Having personally invested and done renovations through house flips in the Bay Area, I wanted to help busy professionals in the Bay Area tech industry find their dream home by leveraging tech, data and local insights. Our team specializes in creating trusted frameworks of buying, selling, and investing in the Bay Area. In 2022, we are thrilled to share that we have helped 80 clients in the Bay Area with their moves, which positions our team as the Top 1% groups in the country. Looking forward to helping you into your next home and save/earn you more money!

Spencer Hsu, MBA, Realtor

Spencer@SpencerHsu.com

408-547-4590

EXP Realty DRE #02077253

https://www.homesbyspencerhsu.com/

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