Marcus & Millichap CEO Hessam Nadji told FOX Business’ “Mornings with Maria” on Thursday that President Biden’s tax proposals are “very concerning” for the commercial real estate industry.
he main major concern is the combination of what’s been proposed, not just the 1031 exchange provision changes where that tax benefits on a deferral basis, not an exemption. The current program is a tax deferral, as you exchange one property into a like-kind property, would be capped at $500 thousand of gains. Coming together you have the proposed increase in capital gains rate, you have changes on the step-up basis and of course, carried interest. All these things coming together as a combination is what is very concerning to the industry.
The 1031 exchange provision itself is not the motivation for real estate investors to buy or sell real estate. It is one of the driving factors. Ernst & Young estimates that somewhere between 10 to 20 percent of all transactions leverage the 1031 exchange tax deferment benefit. So it is an important part of the industry, but it’s not really the only motivation for investors to come into commercial real estate.