President Joe Biden’s policies and tax plans, which still need to pass Congress and be subject to extensive amendments, can have a significant impact on those purchasing or selling land, as well as those exploiting land for commercial or recreational activities. Those affected include, contractors, property managers, tenants, employees, lenders, buyers and investors.
In the US, a conservation easement is a power invested in a private land conservation organization, also known as a land trust, or government to limit the rights of a landowner over a specified land area for conservation purposes. The conservation easement “runs with the land,” meaning it applies to both current and future owners of the land.
The purpose of a conservation easement depends on the property’s characteristics, the conservation objectives of the land trust or government, and the needs of the landowners. Conservation objectives may one or more of the following:
· Maintain and improve water quality
· Preserve and foster the growth of healthy forest
· Maintain and improve wildlife habitat and migration corridors
· Protect scenic views visible from public areas
· Ensure that lands are maintained for sustainable agriculture and forestry
Conservation easements motivate property owners to preserve land by offering a charitable deduction. The goal of a conservation easement can be to safeguard wildlife, plants or ecosystem, preserve historical structures, maintain areas for recreation or education, or to conserve open space.
Under President Biden, conservation easement law is likely to remain the same since it was passed with bipartisan support and was approved by both the Bush and Obama administrations. The deduction for conservation easements is generally supported by both parties.
Investment property owners, who wish to sell their land and buy another property, are entitled to the 1031 tax-deferred exchange, which allows an owner to sell a property, reinvest the proceeds in a new property, and to defer all capital gain taxes. The 1031 Exchange helps farmers, ranchers and other rural landowners monetize their investment when selling one property and buying another.
As part of President Biden’s plan to raise taxes by an estimated $4 trillion, he has proposed to repeal Section 1031 exchanges to extend childcare benefits and elder care over the next decade, which could negatively affect new investment in land real estate, although it would mostly impact high-income earners seeking to significantly profit from land investments.
Estate tax, a tax on the transfer of property after death, is generally favored by Republicans but opposed by Democrats, who favor taxing the wealthy in response to surging wealth inequality. The federal estate tax affects landowners with assets in excess of $11.58 million at the time of death.
The estate tax is usually applied on a progressive rate basis, from 18% on estate values up to $10,000 to a maximum of 40% for estates over $1 million, meaning individuals can transfer up to $11.7 million to their heirs without facing the federal estate or gift tax. President Joe Biden has called for reducing this exemption to $3.5 million for estates and $1 million for gifts, in order to reduce taxes on the middle class and the poor by asking the rich to pay more.
Environmental regulations, which seek to minimize the effects of climate change and create a more sustainable society, will undoubtedly be a priority for the Biden administration, which has already committed to building modern sustainable infrastructure and investing in clean energy sources.
President Biden has pledged to reduce the carbon footprint of US buildings by 50% by 2035, which will require new national building energy performance standards and reinforcing the Department of Energy’s rules for building equipment. Landowners are expected to be able to take advantage of Property Assessed Clean Energy (PACE) loans, renewable energy purchasing incentives, and other tax credits that the administration will implement.
Opportunity Zones Program
The Opportunity Zones Program, which was introduced as part of the 2017 tax reform package is intended to steer long-term capital to rural and low-income urban communities throughout the US by using tax incentives to promote private investment in impact funds.
Although Biden has criticized the program for enabling investors to back upscale projects rather than affordable housing, he has proposed implementing new policies that would require potential investors to detail their opportunity zone investments to determine the project’s impact on poverty rates, housing affordability, and job creation.
Although the tax breaks may now be regulated more carefully to ensure Opportunity Zone projects deliver economic, social and environmental benefits, investors can still work with non-profit or community-oriented organizations to produce a “community benefit plan” for each investment.
All in all, the Biden Administration will be raising taxes on the wealthy but there is still ample room for investors to consider land acquisition prospects. In fact, those who are planning on buying land for commercial or recreational use can certainly take advantage of tax breaks by focusing on environmentally sound uses for their property, which will ensure their investments see a more sustainable future.