President Obama has released his fiscal year 2017 budget proposal

President Obama has released his fiscal year 2017 budget proposal.  Included in the proposal are several revenue raising provisions that if adopted, will have a significant impact on the taxation of the real estate industry and high net worth individuals.  Many of these proposals have been raised in the past.

These proposals include:

  • Taxing carried interests at ordinary income rates rather than capital gains rates.
  • Limiting the gain deferral benefits of Section 1031 exchanges to $1,000,000 per taxpayer per year.
  • Increasing the long-term capital gains and qualified dividends tax rate from 20% to 24.2%.
  • Reinstating the 2009 estate and gift tax rules and exclusions, with a top rate of 45% (it is presently 40%) and an exclusion of $3.5 million (it is presently $5.45 million) for estates.
  • Adopting the “Buffet Rule” of taxing higher income taxpayers with large deductions at a minimum 30% rate.
  • Capping the value of certain tax deductions at 28%.

Given the fact that this is an election year the likelihood of passage of changes of this significance is extremely remote. Several prominent Republicans have already announced their opposition to the proposals.  But the proposals do demonstrate the President’s desire to increase the tax burden placed on real estate professionals and high net worth individuals.