Real Estate Reform Bills Postponed in Congress – For Now

Changes in Real Estate

Real estate investors who have been following legislation in Congress were probably worried by a few proposals floating around that called for serious changes to the tax code and other regulations. Now, it appears that these proposals are on a temporary hiatus before being introduced – at least, throughout 2013. One such proposal is actually a massive tax reform bill proposed by Dave Camp, a Republican representative from Michigan who wants to slash tax rates to 25% maximum for individuals and corporations in exchange for eliminating mortgage interest deductions, property tax deductions, and similar write-offs. That bill was just shelved for mid-2014 at the earliest, though. Another proposal – this one having more of a direct impact on real estate investors – has yet to be taken off the table. Senator Max Baucus, a Democrat from Montana, is proposing to do away with Section 1031 tax-deferred exchanges. This normally allows investors to defer property taxes if they exchange “like-kind” real estate properties within certain properties. Baucus also wants to almost double the depreciation period for real estate assets, which would mean investors couldn’t write off nearly as much in depreciation expenses each year as they can now. Any incentive to discourage homeownership and real estate investment would have a negative impact on the market as a whole. Prices have risen slowly but steadily over the past six years since the crash; it would be a shame to see Congress cause a disturbance that disrupts that pattern and upsets a still-recovering market. Ironically, one area that could benefit would be the rental market. If the proposals described above go through, homeownership could become prohibitively expensive again for homeowners. If this happens, the rental market would do what it started to do in 2008 – turn red-hot again. It’s always wise to stay aware of what is going on in Congress. Ultimately, we think small-scale real estate investors are actually well-positioned to benefit themselves regardless of if the bill passes or not. The potential for growth and profit in the rental market – as well as optimistic expectations for real estate through 2014 – mean that savvy investors can flourish no matter what Congress does.

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