How to Plan for the Proposed Capital Gains Tax Increase

Our next podcast in our Legislative Changes in Real Estate series is here, this time with a focus on planning.

Marcia and I take a look at how to prepare for the potential change.

René Nelson, Eugene commercial real estate broker
Marcia Edwards, Eugene residential real estate broker

Legislative Changes in Real Estate – Part 4

René Nelson: And I’m René Nelson with Pacwest Commercial Real Estate.

Marcia Edwards: Well, it seems like President Biden’s going to gun for some small heavy hitting on some small investors, doesn’t it, René?

René Nelson: Yeah, he is proposing that capital gains will increase by up to 40% at the end of the year, and so that’s going to make an impact both on your real estate portfolio as well as inheritance tax. He’s talking about making an impact on all of it.

Marcia Edwards: So we’re talking about the profits that you’ve gained through appreciation over time on what you’ve put into the property in one way or another, and looking at taking out just the profit. That could be at a 40% tax rate. That’s scary. Now that was not today. That’s the good news. Good news is you have time to do the right thing and get your properties right-sized now.

René Nelson: Absolutely. What I think a lot of people need to do is take a look at your portfolio and start planning now. Talk to a real estate attorney and/or your CPA. Both of those people are super knowledgeable in tax strategies and what you need to do in order to be prepared. And you also need to know the value of your properties. So if you have a one to four family property, a one to four family unit property that is maybe a duplex, or a triplex, or even a single family property that you have a tenant living in, you need to get in touch with Marcia and find out what the value of that property is because your estate attorney and your CPA will want to know that.

Marcia Edwards: And there’s a lot of reasons people are reconsidering being landlords at all. If that’s the case, I would encourage you to consider taking the capital gains hit now versus when it’s from 20% to 40% cap.

René Nelson: Absolutely. I see a lot of people who thought that they were going to do a 1031 exchange into something easier and less management, less maintenance, and they’re just deciding that they’re going to sell and take the cash now while it’s only 20%.

Marcia Edwards: When you bring this to the table, it really makes money for people because this is a big deal. I would encourage you, if you’re over four units, to contact René Nelson. She’s got a finger on the pulse on what the values are and can tell you how to manage and navigate this with the help of your CPA and attorney as well.

René Nelson: The one piece of advice I’d leave you with is be ready and be open to change, because it’s really critical. If you put your head in the sand, it’s going to cost you a lot of money down the road.

Marcia Edwards: Or your family.

René Nelson: Yes.

Marcia Edwards: One way or another, mate, you’re going to take a hit. Let’s make it minimum.

René is available to answer your real estate investment questions. Schedule a 15-minute discovery call to better understand your investments and the market today.