What President Biden’s New Capital Gains Tax Means For Real Estate Investors

In today’s video, Lou Brown together with Scott Paton will give an opinion on President Biden’s increase in capital gains tax.

For Lou, anyone who understands economics understands that there’s a driving force behind real estate. And taxation is a huge part of it.

The impact on real estate that this increase in capital gains tax could be significant. Anybody who doubts that only has to look at history.

We’ve recently seen prices in real estate go up dramatically and eventually those prices could go down because of taxation and interest rates.

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Scott Paton (00:00):

Welcome everybody. I’m Scott Paton and Hey Lou, how are you doing today?

 

Lou Brown (00:14):

I’m doing fantastic, Scott.

 

Scott Paton (00:17):

Awesome. So we wanted to just jump right in, Bloomberg grow, had a story a couple of days ago, and I just want to read the first two paragraphs of it. And then Lou, love to get your opinion. President Joe Biden will propose almost doubling the capital gains tax rate for wealthy individuals. And it’s going to go to 39.6% to help pay for a raft of social spending that addresses longstanding inequality. According to people familiar with the proposal. For those earning a million or more the new talk rate coupled with an existing surtax on investment income means that federal tax rates for wealthy investors could be as high as 43.4%. The new marginal 39.6% rate would be an increase from the current base rate of 20% doubling. The people said on the condition of an amenity because the plan is not yet public. I’d say if it’s in Bloomberg, it’s pretty public, a 3.8% tax on investment income that funds Obamacare would be kept in place pushing the tax rate on returns on financial assets, higher than rates on some wage and salary income they said. So, Lou, what does that mean for real estate investors?

 

Lou Brown (01:44):

Scott, that is a great question. And it’s a question everyone should be asking themselves because right now we do have to pay attention to, you know, be careful what you wish for. You might get it. And what’s happening right now is we’re going to see an intense increase in the cost of actually doing business. Now, if anyone is doubtful that tax benefits or tax costs drive behavior, they should not doubt that. It’s a real thing. I remember this back in 1980, when Ronald Reagan came into office interest rates were 21% at the time. Amazing, hard to believe that it happened in this country. I lived it. I know it to be true. And did it drive things? It absolutely did. It drove the economy into the ground. It was really bad and taxation at the time was very high as well. So not only was there high interest, there was high taxation.

 

Lou Brown (02:47):

Well, what Ronald Reagan did is come in with a whole new plan and that was to increase incentives in real estate. And when he increased the incentive, which was depreciation so that people could write off their properties over 15 years, what happened was the, not only did real estate explode, the economy exploded overall. And anyone who understands economics, understands that there’s a driving force called real estate and really causes things to happen. So to impact real estate in that way would be a significant negative to the economy and anybody that doubts that, only has to look at history. It’s not something that’s a political opinion, it’s history. And when we go back and look at that, what we’re going to be faced with is watch this guys. We’ve seen prices in real estate, go up dramatically and what’s going to happen is we’re going to see those prices come down because they’re absolutely going to be impacted by taxation as well as interest rates.

 

Scott Paton (04:00):

So, what you’re saying is, is if I’m going to invest in a house and I know I’m going to have a sort of capital gains, but now I also know that this much of it’s going to go to the government that didn’t before. I’m going to figure all of that out and say, sorry, Mr. Homeowner, that wants to sell this house. I can’t pay you this much because I’m going to have to pay the government that much and I’m not going to be doing it at a loss. So here you go.

 

Lou Brown (04:23):

It drives behavior. It drives people into other types of investments. It drives people underground to leave their money in the bank rather than invest it. There’s just many factors that people don’t really take into account and maybe they do, because I definitely say that economies are manufactured. They do not occur naturally. And any kind of policies, whether you’re on the left or the right policies, absolutely impact behavior. And it impacts investment and it impacts the value of those assets as a result of those policies.

 

Scott Paton (05:03):

Okay, I’m going to put you on the spot, Lou. It’s A year from now, president Biden’s plan has gone through and starting tomorrow, there’s going to be a 40% capital gains tax on real estate investors or on real estate. What is your plan going to be?

 

Lou Brown (05:25):

Well, I do have a hidden secret on that answer. Actually, there is a type of trust that people can use that can eliminate that problem and that’s for another day, but definitely it’s something that there is a solution for. And by the way, I didn’t have this solution just a few years ago. So it’s something that go ahead and do government, what you’re going to do. We’ve got an alternative for that.

 

Scott Paton (05:57):

So what you’re saying is, is that they’re very, very wealthy who are still going to be buying $20 million mansions and selling them for $30 million a few years later are probably going to figure a way to do it without incurring on this massive tax.

 

Lou Brown (06:15):

Amen. I was just on the phone last night with a real estate investor who lives in California. He is making his way to Puerto Rico where you can actually become a citizen of Puerto Rico and you can get a 4% tax rate, 4%. So, what are they doing? They’re incentivizing behavior. They’re incentivizing money to come to Puerto Rico. So as a result of that, there are a number of people that I know personally that have moved there just because of taxation.

 

Scott Paton (06:59):

That’s incredible. So, do you think the government thinks of all these ramifications when they come up with these plans?

 

Lou Brown (07:05):

No. I think Congress has made up of a lot of really powerful and amazing marketers and they have done a remarkable job in getting themselves elected in the first place. But, as far as having a background and an understanding of what economics are, absolutely not. I don’t think that most of them have one single clue. And by the way, the system is entirely wired. So, people like the Brookings Institute and other places, all they do is just create all of these policies and shove it at the politicians. And then politicians are delivered it hours before they’re supposed to vote on it. Do they read it? Absolutely not. There’s no possible way that they could read it. There’s no possible way they can actually know what they’re voting on. So they’re told by their superiors, their leadership, how to vote and, Oh, by the way, if you don’t vote this way, not a problem. We’re going to run somebody against you in your local district so that you won’t win next time. Hey, how did you want to vote again? So unfortunately, the system is very wired by a few people. And unfortunately our leadership is behind the scenes creating whatever it is they want to create for themselves and others that are their friends.

 

Scott Paton (08:34):

So Lou, if somebody wanted to, you know, know more about how you teach people to invest in real estate and how they can prepare for this potential, would you call, like, how would you just in like one word, describe a 43% capital gains tax?

 

Lou Brown (08:53):

Train wreck.

 

Scott Paton (08:53):

Train wreck, right?

 

Lou Brown (08:56):

May be that’s few words.

 

Scott Paton (08:58):

We’ll put a dash in there. So if I’m a wholesaler, am I going to be impacted by this?

 

Lou Brown (09:04):

Oh my gosh. Well imagine, you’re a wholesaler. You’re getting ordinary income. This is not even 10 99 income. All of the money that you’re making is capital gains. You’re buying it at one price. You’re selling it at another price. All of that is a game. So if you’re impacted, if you’re in a higher income bracket, well, you’re going to pay a significant portion of that to your partner, good old uncle Sam. And I don’t know how anybody would not stop doing wholesaling simply because of a 40% tax. Of course, people are going to stop wholesaling. What it’s going to do is slow everything down. Flipping is going to become a thing of the past. People are not going to flip because they don’t want to be impacted with that 40% tax.

 

Scott Paton (09:57):

So, you, I was going to ask you about the flipping, you covered that. So basically, most aspects of real estate investing are going to be negatively impacted by it. What if I have it? So if I have it in my business, it’s not like my personal, is that going to be this? Is there any difference?

 

Lou Brown (10:17):

Well, there’s things we don’t know. We don’t know what the rules are going to be with this new proposal. And definitely, they’re going to change the rules. Definitely, they’re going to put things in place that, let’s say favor their opinion, because we know that politics is policy, right? So they want to create policies that impact their viewpoint of the world. And one of the things is that you, and looking at those rules, you kind of figure out which way to maneuver. Well, what is great about our business is that, we give people the opportunity to someday own a home from us. And we can actually be the bank for them. Well, from a taxation point, that is a way to extend out any potential capital gains.

 

Scott Paton (11:13):

Right. Cool. All right. So, if somebody wanted to know more about how you teach real estate investors to invest profitably, regardless of what the government’s doing. What would you say?

 

Lou Brown (11:28):

Oh, wow! Well, you know, I’ve got a one day, it’s called The Wealth Builder Workshop.

 

Lou Brown (11:43):

Might as well say, www.WealthBuilderWorkshop.Online/Lou because, not .com, not .net, .online. So what happens is for $1 I will give you, teach you, train you all day long on exactly what to do and how to do it. And I’m somebody who actually knows this stuff because we’re going into my fifth real estate cycle. I’ve been at this game for over 40 years, buying, holding, and selling property. And I’m going to show people how I’ve been able to maneuver all of these different ups and downs in the economy and in taxation all of these years. So it’s definitely, an opportunity to get on board for a whole day with me, it’s going to be 10:00 AM to 6:00 PM Eastern Time. So when you join me, know that I am giving you, because you have seen this. I’m giving you the whole day for $1 and you can register at www.WealthBuilderWorkshop.Online/Lou strongly recommend that you be there.

 

Lou Brown (12:50):

Even if you could only be there for four hours, at least you’ll get a lot of value from what I’m teaching and you’ll know how we are not concerned at all about what Congress does, about what the President does, because we know that there is an ultimate solution. And I’m going to share it with you. I’m going to share it with you all day long during The Wealth Builder Workshop. Now, we’re not only going to talk about finding the holy grail, so to speak of sellers and buyers. And even before you even buy real estate, you’re already going to have a customer I’m going to teach you how to do that. And then on the flip side, how to protect all that you create using trust. So I’m going to give you a training on many of the 30 different benefits of using trust. We’re going to do this during this all day workshop. So, even we’re going to have a happy hour after we end on a Saturday evening. So just join me for that one day Wealth Builder Workshop And go to www.WealthBuilderWorkshop.Online/Lou You can register for it coming up very quickly. So don’t miss the opportunity.

 

Scott Paton (14:06):

Wonderful. So before we sign off, Lou, do you have one tip you’d like to share with the audience?

 

Lou Brown (14:13):

Well, you know, these are uncertain times. These are definitely uncertain times in what we’re seeing across the country is we’re seeing an amazing let’s say explosion in real estate because we’re seeing people pay not only market value, but above market value on properties and frankly paying too much for property. And so what we’re going to navigate is the opportunities that exist right now. So my strong encouragement is, to start paying attention to your neighborhood. Where are the vacant properties? Where are the properties with tarps on the roof and the tall grass, the newspapers in the driveway? Where are those opportunities? Because I want to show you exactly what to do with those opportunities. And we’re going to do that at the workshop as well.

 

Scott Paton (15:03):

Awesome. Thanks. Thanks for joining us, everybody. We’ll see you next time. Bye for now.

 

Lou Brown (15:08):

Yeah