Most Likely Tax Changes— with new President and new Congress

President Joe Biden proposed numerous tax law changes when campaigning for office, that, if enacted, would have significant impacts for hard working land owners. The biggest potential change is the end of 1031 exchanges, also known as like-kind exchanges. He has proposed their elimination.

“Like-kind exchange rules encourage investors to remain invested in real estate while still allowing them to balance their investments to shift resources to more productive properties, change geographic location, or diversify or consolidate holdings,” according to the National Multifamily Housing Council.

Also proposed is a possible change to the tax rate on capital gains. Currently, the capital gains tax rate for assets held over one year maxes out at 20 percent, but Biden has proposed increases to this rate to 39.6 percent for taxpayers earning over $1 million. Capital gains for those in this higher tax bracket would effectively become taxed at the same rate as income.

The president is also seeking to impose significant tax increases on income derived from investment and management of multifamily real estate, as well as diminish the ability of individuals to transfer assets to heirs on a tax-free basis.

The estate tax exemption will be reduced by 50%

The top individual federal income tax rate would rise from 37% to the pre-Trump rate of 39.6%.

The corporate rate would rise from 21% to 28%; a 15% alternative minimum tax would apply to corporate book income of $100 million and higher.

Individuals earning $400,000 or more would pay additional payroll taxes.

Family Rights

Recent amendments to the California Family Rights Act (CFRA) significantly expanded coverage under the law; now, a whole group of California employers suddenly have substantial obligations they previously did not, including providing employees with 12 weeks of unpaid family leave for certain medical or family reasons.

Before the amendments, which took effect Jan. 1, 2021, the CFRA was very similar to the federal Family and Medical Leave Act (FMLA): It applied to employers with 50 or more employees. Now the CFRA requires employers with as few as five employees to comply with the requirements of the California law or face administrative actions by the Department of Fair Employment and Housing (DFEH) and civil suits by employees.

The types of leave requests now permitted under the CFRA have also been expanded—for example, employees may now request leave to care for adult children, grandchildren, grandparents and siblings. Additionally, the availability of bonding leave under the CFRA now applies equally to both partners even if employed by the same employer.

Both newly covered employers and those that were already subject to the act will need to review and revise their employment practices.

Employers with five to 49 employees are now subject to the CFRA. Here are some of the basic requirements:

  • The CFRA requires employers to grant eligible employee requests for up to 12 weeks of unpaid family or medical leave within a 12-month period.
  • An eligible employee is someone with more than 12 months of service with the employer, and who has at least 1,250 hours of service with the employer during the previous 12-month period.
  • Triggering events include the employee’s own serious health condition, as well as the need to care for a child, parent, grandparent, grandchild, sibling, spouse or domestic partner with a serious health condition; the birth or adoption of a child; and “qualifying exigency related to the covered active duty or call to covered active duty of an employee’s spouse, domestic partner, child, or parent in the Armed Forces of the United States.”
  • Employers must maintain and pay for group health insurance coverage on the same terms for employees during any period of leave.
  • Employers must provide returning employees with employment in the same position or a comparable position that has the same or comparable duties and compensation.
  • CFRA leave does not run concurrently with Pregnancy Disability Leave, so an employee who is disabled by pregnancy can take up to seven months of unpaid protected leave.