Tax Change in the U.S

In the U.S., President Biden has announced a raft of proposed tax changes, many of which include increases for those with incomes over US$400,000. The proposed package has been created to fund his US$1.8 trillion American Families Plan and includes higher taxes in real estate transactions where capital gains on investment properties are more than US$500,000.

Currently, property portfolio owners avoid paying capital-gains taxes on the sale of an investment property, as they can reinvest the proceeds from the sale into another property that costs the same or more, using the 1031 or “like-kind” exchange. The 1031 exchange was viewed as a useful tax-referring mechanism, as it allowed investors to put more of their profits into a new purchase. Under the proposed rules, Biden wants a US$500,000 cap on 1031 exchanges.

In California, the Proposition 19 rule is a new tax break to encourage home buyers aged 55 and over to move into new homes by reducing their tax bill. Previously, seniors kept their property-tax rate, set when they bought their home. They also had a one-time opportunity to retain their existing tax benefits if they move to a home of equal value or less value within the same county. From April 2021, they will be able to blend the taxable value of their old home with the value of a new, more expensive home, up to three times. However, the new rule limits people from keeping a low property-tax base unless they use the home as their primary residence.

Hawaii has a proposed conveyance-tax increase, known as House Bill 58, which would apply to sales of residential properties worth US$4 million or more, with the most expensive homes paying quadruple the current rates. The bill doubles the conveyance tax for single-family homes and condos that sell for between US$4 million and US$5.99 million, triples it for sales of US$6 million to US$9.99 million, and quadruples it for sales of US$10 million or more.