By: John Penner, MAI, Senior Managing Director, National Director of Fractional Interest Valuation, Valbridge Property Advisors | Orange County

Tax changes are coming. President Biden discussed in his campaign the raising of the Federal Income tax rate to 39.6% from the current 37% for top earners over $400,000 per year. Additional changes will move taxes for long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6% on income above $1 million and eliminate the step-up in basis for capital gains taxation. Biden would also raise taxes on corporations by increasing the current corporate income tax rate from 21% to 28%.

These items have taken most of the headlines lately, however, for real estate owners there is more to come. The biggest among these changes is the possible reduction of the current exemption for individual inheritance tax from $11.58 million to $3.5 million. The tax rate for the estate and gift taxes above the exemption would also increase from the current 40% to 45%. It is unlikely that these new tax proposals will be put forth in the immediate future (next three months) because the President has other more pressing issues to deal with like the COVID-19 pandemic. It is also unlikely that Congress would enact new tax changes and make them retroactive to the beginning of the year. However, if congress begins tax legislation, they may then make the changes effective to when the new bill was introduced. If you are considering a gifting in real estate, you may want to move forward as soon as possible. Real estate values are presently lower for some property types due to the pandemic and recession.  If you are gifting a fractional interest in a property, you probably also qualify for an additional discount in value.

Valbridge Property Advisors can help in establishing values for real estate, business valuation, and fractional interest valuation. Our reports withstand the scrutiny of the Internal Revenue Service (IRS). We have 80 offices nationwide to serve you. Feel free to contact any of our office locations for a consultation.