November 17, 2020 - Douglas Myser

Bidens tax rules and real estate impact. Both candidates have made all sorts of proposals on ways to change things from taxes to healthcare to the COVID-19 pandemic. Democratic candidate Joe Biden has proposed a change to the tax benefits for making 401 (k) contributions, so here's a rundown of what the change would be and how it might affect real estate investors. Biden's 401(k) proposal in a nutshell. The Motley Fool's Catherine Brock, recently wrote an excellent and detailed discussion of Biden's 401(k) proposal. Under the current law, 401(k) investing favors high-income individuals. Think about it this way, if you're in the 12% tax bracket and set aside $5,000 in your 401(k) in 2020, you'll save $600 on your taxes this year. On the other hand, if you're in the 37% tax bracket and set aside $5,000, your tax break is worth $1850. In other words, the higher income individuals gets more than three times the tax break for setting aside the exact same amount of money. Biden's plan aims to level the playing field. Instead of structuring the 401 (k) contribution benefit as a deduction, the value of which is based on marginal tax rates, Biden proposes making it a credit which would have the same value for everyone. Bidens tax rules and real estate impact.

How could it affect real estate investors ? The short answer is that in most cases it wouldn't. Employer sponsored 401(k) plans don't allow participants to make real estate investments except in mutual fund form. Because of the high cost of real estate investments, most people who use this route roll over their old 401(k) balances. But self employed individuals can continue to contribute to their accounts as long as they have self employment income, so the proposed tax change could potentially make the tax benefits of investing in real estate this way less valuable. This would only impact a small portion of investors involved in real estate.

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