The Biden Administration May 28 released a summary, fact sheet and Treasury’s Greenbook of tax proposals on President Joe Biden’s proposed $6 trillion budget for fiscal year (FY) 2022. The FY 2022 budget request incorporates not only annual discretionary spending and estimates of mandatory spending, but also the American Jobs Plan and American Families Plan, the administration’s key components of its infrastructure priorities.

The Biden administration requests $1.52 trillion in base FY 2022 discretionary spending, $753 billion for defense (a $12.2 billion or 1.6% increase from FY 2021) and $770 billion for nondefense (a $109 billion or 16.5% increase from FY 2021), the first such request where nondefense exceeded defense in recent history. Nondefense spending includes a request of $68.7 billion for the U.S. Department of Housing and Urban Development (HUD), a $9.1 billion or 15% increase over FY 2021 appropriations of $59.6 billion, and $330 million for the U.S. Treasury’s Community Development Financial Institutions (CDFI) Fund, a $60 million or 22% increase from 2021. A subsequent blogpost will detail the proposed FY 2022 HUD and CDFI Fund program funding levels.

Treasury’s FY 2022 Greenbook includes details of tax proposals previously announced by the White House, Treasury, and HUD as part of the American Jobs Plan and the American Families Plan. The community development and clean energy proposals include:

• Expansion of the low-income housing tax credit (LIHTC),
• Creation of a neighborhood homes investment tax credit,
• Permanence for the new markets tax credit (NMTC),
• Authorization of new tax-exempt bonds for schools and infrastructure,
• Extensions and enhancements of the renewable energy production and investment tax credits (RETC), and
• Extensions and modifications of the energy efficiency tax incentives.

In addition to these tax expenditure proposals, the Greenbook also provided details on corporate and individual revenue raising proposals, which could affect the community development and clean energy tax incentives. Highlights of those revenue raising proposals include:

Corporate

• Increasing corporate rate from 21% to 28%,
• Reforming and increasing global minimum tax from 10.5% to 21%,
• Replacing base erosion and anti-abuse tax (BEAT) with stopping harmful inversions and ending low-tax developments (SHIELD) rule, and
• Establishing new 15% minimum “book” tax for large corporations.

Individual

• Increasing top marginal tax rate from 37% to 39.6% for 2022-25,
• Reforming capital income taxation, and
• Sharply limiting deferral of gain from 1031 like-kind exchanges.

In total, all of the FY 2022 Greenbook proposals would raise a net $2.39 trillion over 2022-31, which would offset the cost of the spending proposals in the American Jobs and Families Plan. More specifically, the American Jobs Plan Greenbook proposals, where the community development and clean energy tax incentive proposals are included, would raise a net $1.67 trillion over 2022-31, while the American Families Plan Greenbook proposals would raise a net $722 billion over 2022-31.

See below for highlights of the community development and clean energy incentive proposals, as well as selected revenue raising proposals in the Greenbook.

Community Development and Clean Energy Incentives

Expand LIHTC to Finance More Affordable Rental Housing in “High Opportunity” Areas
(cost over 2022-31: $31.9 billion)

Treasury proposes to significantly expand the LIHTC to incentivize affordable rental housing development in “high opportunity” areas.

The proposal authorizes a separate pool 9% LIHTC authority equivalent to 118% of the aggregate “regular” population-based 9% LIHTC authority under current law, referred to as “Opportunity Housing Credit Dollar Amounts” (OHCDAs), in calendar years 2022-2026.

The White House and HUD has referred to this OHCDA proposal as an $11 billion annual increase over five years for a total of a $55 billion increase in LIHTC authority from current law. Indeed,118% of 2021 9% LIHTC authority is $11.3 billion. However, as the Greenbook itself notes, 2021 is the last year of the 12.5% increase in 9% LIHTC allocations authorized by Congress in 2018, and so under current law, 118% of 9% LIHTC authority is estimate to be slightly more than $10 billion in 2022 and $51.3 billion over 2022-26.

While the administration refers to the 118% allocation increase as costing $55 billion over its lifetime, over the 10-year budget window against which it would be scored in tax legislation, Treasury estimates it costs $31.9 billion over 2022-31.

States would be required to allocate at least 50% of these new OHCDAs in a “Census Tract of Opportunity” (CTO), which is defined as “a tract which is entirely in one or more [Difficult Development Areas] or which has low poverty or other advantages, as determined by the Secretary of the Treasury in consultation with HUD.”

While these OHCDAs would be made on a per-capita basis, there would a different per capita amount applied in each state based on a formula determined by the Secretary in consultation with HUD that would consider costs of constructing and operating affordable housing, as well as the percentage of state’s population living in DDAs or rent-burdened households.

The proposal would allow a basis boost for 9% LIHTC properties in DDAs to be increased to up to 50%, which would be a permanent change. The basis boost for tax-exempt private activity bond (PAB) financed properties, or 9% LIHTC properties outside of DDAs would be unchanged from current law.

The proposal is a strong endorsement of the LIHTC from the Biden administration, and LIHTC is the housing related incentive receiving the largest absolute increase in the American Jobs Plan. However, it does not appear likely that Congress would adopt this Greenbook proposal unchanged. It should be noted that the Affordable Housing Credit Improvement Act (AHCIA, H.R. 2573/S. 1136) does include a provision to increase the population cap on DDAs from 20% to 30%, which would incentivize more development in higher opportunity areas, and it also includes a provision to increase the basis boost of 9% (and 4%) LIHTC properties serving extremely low-income households to as much as 50%, regardless of location.

It is also worth noting that the total of LIHTC provisions included in last year’s Moving Forward Act (H.R. 2/116th), the comprehensive infrastructure legislation passed in the House in July 2020, is about $62 billion over 2020-30, after taking out the $7.5 billion cost of the 4% floor as enacted by Congress in December. Novogradac estimated last year that the LIHTC provisions in the Moving Forward Act (H.R. 2/116th) would finance more than a million affordable rental homes over 10 years.

Make the NMTC Permanent and Index Annual Allocation Authority to Inflation
(cost over 2022-31: $3.9 billion)

As the Obama administration did in its later annual Greenbooks, the Biden administration proposes to make the NMTC an indefinite part of the tax code, which would provide certainly for community development stakeholders and has the potential of increasing the chance of new allocatees. Furthermore, the Greenbook proposes to set the 2026 NMTC allocation authority at $5 billion, indexed for inflation after 2026, just as the LIHTC and PAB per capita and small state minimum amounts are under current law.

However, unlike the FY 2016 and FY 2017 Greenbooks in the Obama administration, the NMTC Extension Act (H.R. 1321/S. 456), or Moving Forward Act (H.R. 2/116th), the FY 2022 Biden administration Greenbook does not propose to allow NMTC to offset AMT liability. It is unclear what prompted the change in the Greenbook proposal, especially because Mark Mazur, the current Treasury Deputy Assistant Secretary for Tax Policy was the Assistant Secretary for Tax Policy when the FY 2016 and 2017 Greenbooks were released.

Nevertheless, it appears likely that AMT relief still has a decent chance of being included when Congress takes up infrastructure legislation given the strong bipartisan and bicameral support of the NMTC Extension Act in Congress.

It is also worth noting that the 10-year cost of making the NMTC permanent is particularly low this year because in December 2020 Congress provided a five-year extension at $5 billion annually for 2021-25, so the proposal only scores during 2026-31.

Neighborhood Homes Investment Act (cost over 2022-31: $13.0 billion)

As previewed in the American Jobs Plan outline released in March and the American Jobs Plan Housing Fact Sheet released May 26, the Greenbook proposes to create a new federal tax credit, based on the Neighborhood Homes Investment Act (NHIA, H.R. 2143/S. 98), to support new construction or substantial rehabilitation of single-family owner-occupied homes in distressed communities. Like NHIA, it would authorize $6 per capita or $8 million for a small state minimum, which would provide approximately $2 billion annually in total NHIA credit authority nationwide. Because recipients of NHIA credits would have as many as five years to place properties in service, and so not all of the cost would be expected to be claimed during the 10-year budget window, Treasury estimates the proposal would cost $13 billion over 2022-31.

Authorize New Tax-Exempt Bonds for Schools and Infrastructure (cost over 2022-31: $11.8 billion)

The Greenbook would create tax-exempt qualified School Infrastructure Bonds (QSIBs), which would be similar to Build American Bonds (BABs) authorized under the Obama administration. There would be a total national QSIB limitation of $50 billion—$16.7 billion each for 2022, 2023, and 2024. The allocation of this bond authority among States would be based on the proportion of funds that each State receives under Title I, Part A of the Elementary and Secondary Education Act of 1965.

Analogous to the operation of BABs, interest on QSIBs would be taxable. Either the bondholders’ interest would take the form of a tax credit equal to 100% of the interest on a QSIB, or the bondholders would receive cash from the bond issuer, and the federal government would make corresponding direct payments to the bond issuer.

States could enable local education agencies to issue QSIBs to expand access to high-speed broadband sufficient for digital learning. The local authorization may not exceed 10% of the State’s total authorization to issue QSIBs and must be competitively allocated among local education agencies based on the poverty level of the schools’ student population and the severity of the need to improve school facilities.

The Greenbook would also expand the category of tax-exempt private activity bonds originally created by the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) Act of 2005, the surface transportation authorization law. It would increase the amount of such bonds to be allocated by the Secretary of Transportation by an additional $15 billion. The proposal would also add public transit, passenger rail, and infrastructure for zero emissions vehicles as qualified activities for which such bonds may be issued. These bonds would not be subject to state private activity bond volume caps.

Opportunity Zones and Historic Tax Credits

The Greenbook contains no proposals regarding the Opportunity Zone (OZ) incentive or Historic Tax Credits. However, Ways and Means Committee Chairman Richard Neal, D-Massachusetts, has pledged to address HTC (in addition to LIHTC and NMTC) in any comprehensive infrastructure legislation the committee will consider this year, and the Moving Forward Act (H.R. 2/116th) contains several proposals from the Historic Tax Credit and Opportunity (HTC-GO) Act (H.R. 2294) costing nearly $16 billion over 2020-30.

It should be noted that the Biden campaign did suggest programmatic changes to the OZ incentive, which could be implemented through regulatory and administrative changes. Such actions are more likely to be considered after Treasury Assistant Secretary for Tax Policy nominee Lily Batchelder is confirmed. The Senate Finance Committee recently held a May 25 hearing on her nomination, and she is expected to be confirmed in the coming weeks.

The total cost of the Greenbook housing and infrastructure proposals over 2022-31 is $60.6 billion.

Selected Renewable and Clean Energy Incentives

As previewed in the American Jobs Plan outline released in March, the Greenbook proposes an ambitious set of renewable and clean energy tax incentives designed to help meet the Biden administration’s expansive climate goals, as well as repeal 13 fossil fuel related tax incentives to help pay for them. They are generally effective starting in 2022.

For several of the clean energy proposals, the Greenbook states, “the administration will work with Congress on measures to pair these credits with strong labor standards, benefiting employers that provide good-paying and good-quality jobs.” Both the GREEN Act (H.R. 848) and the Clean Energy for America Act (S. 1298), the two main House and Senate clean energy bills pending in Congress likely to inform the clean energy portion of infrastructure legislation, also contain provisions implementing prevailing wage and other labor provisions for clean energy incentives.

The following highlights a selection of those proposals, which in total would cost nearly $303 billion over 2022-31 according to Treasury. In addition to the incentives discussed below, the Greenbook proposes the creation or expansion of:

• electric vehicle charging stations tax credit,
• existing nuclear power facility production tax credit,
• zero emissions tax credit,
• low carbon hydrogen tax credit
• section 45Q carbon oxide sequestration tax credit, and
• sustainable aviation fuel tax credit.

Extend and Enhance PTC (cost over 2022-31: $38.6 billion) and ITC (cost over 2022-31: $210.6 billion)

The Greenbook would extend the full renewable energy production tax credit (PTC) for projects that begin construction after Dec. 31, 2021 and before Jan. 1, 2027. Starting in 2027, the credit rate would begin to phase down to zero over five years. The credit rate would be reduced by:

• 20% for facilities commencing construction after Dec. 31, 2026 and before Jan. 1, 2028,
• 40% for facilities commencing construction after Dec. 31, 2027 and before Jan. 1, 2029, and
• so on until the credit rate reaches zero.

Like the PTC, the Greenbook would extend the renewable energy investment tax credits (ITCs) for:

• solar and geothermal electric energy property,
• qualified fuel cell power plants,
• geothermal heat pumps,
• small wind property,
• offshore wind property,
• waste energy recovery property, and
• combined heat and power property.

Starting in 2022, the investment credit would be expanded to include stand-alone energy storage technology that stores energy for conversion to electricity and has a capacity of not less than five kilowatt hours.

The credit would be restored to the full 30% rate for eligible property that begins construction after Dec. 31, 2021 and before Jan. 1, 2027. After 2026, the credit rate will begin to phase down to zero over five years.

• Eligible property that begin construction after Dec. 31, 2026 and before Jan. 1, 2028 will receive 80% of the full credit,
• Eligible property beginning construction after Dec. 31, 2027 and before Jan. 1, 2029 will receive 60% of the full credit, and
• so on until the credit rate reaches zero in 2031.

Taxpayers would have the option to elect a cash payment in lieu of the PTC or ITC (i.e., a direct pay option). Unlike the GREEN Act or the Clean Energy for America Act, Treasury does not specify the amount of the cash payment. Furthermore, the Greenbook does not discuss how the option would work.

Create New Electricity Transmission Tax Credit (cost over 2022-31: $23.6 billion)

The Greenbook would provide a credit equal to 30% of a taxpayer’s investment in qualifying electric power transmission property placed in service in a given year. Qualifying electric power transmission property would include overhead, submarine, and underground transmission facilities meeting certain criteria, including a minimum voltage of 275 kilovolts and a minimum transmission capacity of 500 megawatts. Qualifying property would also include any ancillary facilities and equipment necessary for the proper operation of the transmission facility.

Like the PTC and ITC, taxpayers could elect a direct pay option. The proposal would be effective for property placed in service after Dec. 31, 2021, and before Jan. 1, 2032.

Extend and Enhance Section 45L New Energy Efficient Home Credit (cost over 2022-31: $1.7 billion)

The proposal would increase the section 45L tax credit for a new energy efficient home from $2,000 to $2,500 and extend the tax credit five years to Dec. 31, 2026. The proposal would also modify and expand the dwelling units eligible for the credit. For new energy efficient homes, the required energy savings percentage would increase from 50% to 60% under the 2006 International Energy Conservation Code (IECC) standards, which applies to residential buildings of three stories or less above grade. In addition, certified Energy Star homes would also be eligible for the 45L tax credit as well as dwelling units with annual heating and cooling consumption at least 15% below the annual energy consumption level of a comparable dwelling unit under the 2018 IECC standards.

Both the GREEN Act and Clean Energy for America Act would also extend and enhance the 45L credit, but Clean Energy for America Act, as amended by the Senate Finance Committee May 26, would reform the 45L credit in the following ways:

• Adopts Energy Star residential new construction program standard (or any successor program, as determined by the Secretary) in place of the 2006 International Energy Conservation Code for 45L.
• Increases the 45L credit amount to $2,500/unit for properties meeting Energy Star residential new construction program standard and $5,000/unit for new residential construction properties meeting DOE Zero Energy Ready Home standard.
• Allows developers to take the 45L credit without it reducing LIHTC basis.
• Applies 45L to all residential properties (both single family and multifamily, regardless of number of stories above grade), meeting the required energy cost savings.
• Eliminates substantial reconstructed or rehabilitated properties from receiving 45L credits
• Exempts single family properties receiving 45L assistance from labor provisions, but not multifamily properties.

Enhance Section 179D Energy Efficient Deduction (cost over 2022-31: $3.2 billion)

The proposal would increase the maximum section 179D deduction per square foot from $1.80 to $3.00 for qualifying property placed in service after Dec. 31, 2021. The partial deduction rate would be increased from $0.60 to $1.00 per square foot for qualifying property placed in service after Dec. 31, 2021. The required efficiency standard in relation to the reference building’s total annual energy reduction would be adjusted from 50% to 30%.

Both the GREEN Act and Clean Energy for America Act would also enhance the 179D deduction, but Clean Energy for America Act, as amended by the Senate Finance Committee May 26, would reform the 179D deduction in the following ways:

• Increases 179D deduction to $2.50-$5.00/sq. ft. depending on extent of energy cost reductions between 25%-50% as compared to the applicable standard (for each percentage point of energy cost reductions greater than 25%, add 10 cents to $2.50/sq. ft.)
• Instructs Treasury Secretary to work with the U.S. Department of Energy to create a standard equivalent to the existing American Society of Heating, Refrigeration and Air Conditioning Executives (ASHRAE) for properties with 3 stories or fewer above grade so that they may be eligible for 179D deduction.
• Allows residential properties to receive either the 45L credit or the 179D deduction, but not both.
• Still requires depreciable basis (and in turn, LIHTC basis) to be reduced by the amount of the 179D deduction

Selected Revenue Raising Proposals

In general (and unless noted otherwise), the revenue raising proposals highlighted below would be effective for taxable years beginning after Dec. 31, 2021.

Corporate: Increase rate from 21% to 28% (raises over 2022-31: $857.8 billion)

The Greenbook proposes to raise the corporate tax rate from 21% to 28% starting in 2022. For taxable years beginning after Jan. 1, 2021 and before Jan. 1, 2022, the tax rate would be equal to 21% plus 7% times the portion of the taxable year that occurs in 2022.

In negotiations with Senate Republicans on infrastructure legislation, Biden reportedly has offered to drop his request for 28% corporate tax rate in exchange for Republicans agreeing to his minimum “book” tax proposal described below.

However, even if Republicans don’t agree to such a trade and Democrats continue to pursue a 28% rate, it is unlikely to be enacted, even under budget reconciliation requiring only Democratic votes. While it is possible that the House could pass legislation authorizing such a rate, it appears unlikely that such a rate would receive 50 votes in the Senate. No Senate Republican is likely to vote for it, and several moderate Senate Democrats are unlikely to support such a rate. For example, Sen. Joe Manchin, D-West Virginia, has suggested that he would be more willing to consider a 25% rate.

Raising the corporate rate would likely increase investor demand for community development and clean energy tax incentives, which would be important as Congress considers proposals to substantially increase the supply of tax incentives.

Corporate: Reform and Increase Global Minimum Tax from 10.5% to 21%
(raises over 2022-31: $533.5 billion)

The Greenbook offers new details on the administration’s proposed changes that would drastically alter the international taxation landscape, fleshing out proposals previously outlined in its Made in America Tax Plan. One key component of those changes is the reform of the global intangible low-taxed income (GILTI) rules first enacted in the 2017 tax reform law.

In particular, the Greenbook calls for an end to the exemption for returns of qualified business asset investment, a move to a country-by-country application, and reduce the section 250 deduction from 50% to 25%, effectively resulting in an increase in the minimum rate from 10.5% to 21% (assuming a top corporate tax rate of 28%).

Corporate: Replacing BEAT with SHIELD (raises over 2022-31: $390.1 billion)

In addition to reforming the global minimum tax, the proposal would replace the base erosion anti-abuse tax (BEAT) established in the 2017 tax reform legislation with the new Stopping Harmful Inversions and Ending Low-Tax Developments (SHIELD) rule.

While they have similar goals to prevent multinational corporations with global annual revenues of $500 million or more from making cross-border financial transactions to evade tax liability, they would operate differently. Like the BEAT, the proposed SHIELD would generally apply to payments that pose a risk to the U.S. tax base. However, SHIELD would do away with the BEAT and its trigger mechanism — which generally applies when cross-border related-party payments exceed 3% of total deductions — in favor of an effective tax rate threshold. As proposed, the SHIELD rule would also differ from the BEAT by denying the deductions for the relevant payments entirely in certain low-taxed countries and partially in others based on their effective tax rate instead of imposing a minimum tax on some adjusted measure of taxable income. As structured, the SHIELD rule would not directly affect the ability of taxpayers subject to SHIELD to invest in community development and clean energy tax incentives.

The BEAT only allowed taxpayers to offset 80% of the LIHTC, ITC, and PTC against their BEAT liability until 2025, and zero percent thereafter. The NMTC or HTC could not offset BEAT liability at all.

Corporate: Establish New 15% Minimum “Book” Tax for Large Corporations
(raises over 2022-31: $148.3 billion)

Taxpayers are generally required to compute their taxable income based on their reported net income according to Generally Accepted Accounting Principles (GAAP). Although net income is the basis for determining taxable income, various provisions of the Internal Revenue Code allow some profitable large corporations to reduce their taxable income.

The Greenbook would impose a 15% minimum tax on worldwide “book” income for corporations with such income in excess of $2 billion. In particular, taxpayers would calculate “book” tentative minimum tax (BTMT) equal to 15% of worldwide pretax book income (calculated after subtracting “book” net operating loss deductions from “book” income), less General Business Credits (including R&D, clean energy and community development tax credits) and foreign tax credits. Treasury argues that in a typical year, around 120 companies report pretax net income of $2 billion or more on the financial statements.

Individual: Increases Top Marginal Rate to 39.6% (raises over 2022-31: $131.9 billion)

The proposal would increase the top marginal individual income tax rate to 39.6%. This rate would be applied to taxable income in excess of the 2017 top bracket threshold, adjusted for inflation. In taxable year 2022, the top marginal tax rate would apply to taxable income over $509,300 for married individuals filing a joint return, $452,700 for unmarried individuals (other than surviving spouses), $481,000 for head of household filers, and $254,650 for married individuals filing a separate return. After 2022, the thresholds would be indexed for inflation using the Chained CPI for Urban Consumers (C-CPI-U), which is used for all current tax rate thresholds for the individual income tax.

It should be noted that under current law, the top marginal rate will increase to 39.6% in 2027 and thereafter, so the proposal would only apply to 2022-26, limiting the revenue that it would raise.

Individual: Reforms Capital Income Taxation (raises over 2022-31: $322.6 billion)

Tax capital income for high-income earners at ordinary rates.

Under the Greenbook proposal, long-term capital gains and qualified dividends of taxpayers with adjusted gross income of more than $1 million would be taxed at ordinary income tax rates, with 37% generally being the highest rate (40.8% including the net investment income tax), but only to the extent that the taxpayer’s income exceeds $1 million ($500,000 for married filing separately), indexed for inflation after 2022. This proposal would be retroactive, effective for gains required to be recognized after April 2021.

Treat transfers of appreciated property by gift or on death as realization events.

Under the Greenbook, the noncorporate donor or deceased owner of an appreciated asset that has not been subject to a recognition event in the past 90 years would realize a capital gain at the time of the transfer. For a donor, the amount of the gain realized would be the excess of the asset’s fair market value on the date of the gift over the donor’s basis in that asset. For a decedent, the amount of gain would be the excess of the asset’s fair market value on the decedent’s date of death over the decedent’s basis in that asset. That gain would be taxable income to the decedent on the Federal gift or estate tax return or on a separate capital gains return.

The Greenbook makes exceptions to this capital income taxation reform. For example, transfers by a decedent to a spouse or charity would carry over the basis of the decedent. Capital gain would not be recognized until the surviving spouse disposes of the asset or dies, and appreciated property transferred to charity would not generate a taxable capital gain.

The proposal would exclude from recognition any gain on tangible personal property such as household furnishings and personal effects (excluding collectibles). The $250,000 per-person exclusion under current law for capital gain on a principal residence would apply to all residences and would be portable to the decedent’s surviving spouse, making the exclusion effectively $500,000 per couple. Finally, the exclusion under current law for capital gain on certain small business stock would also apply.

In addition to the above exclusions, the proposal would allow a $1 million per-person exclusion from recognition of other unrealized capital gains on property transferred by gift or held at death. The per-person exclusion would be indexed for inflation after 2022 and would be portable to the decedent’s surviving spouse under the same rules that apply to portability for estate and gift tax purposes (making the exclusion effectively $2 million per married couple).

Payment of tax on the appreciation of certain family-owned and -operated businesses would not be due until the interest in the business is sold or the business ceases to be family-owned and operated. Furthermore, the proposal would allow a 15-year fixed-rate payment plan for the tax on appreciated assets transferred at death, other than liquid assets such as publicly traded financial assets and other than businesses for which the deferral election is made.

The proposal would be effective for gains on property transferred by gift, and on property owned at death by decedents dying, after Dec. 31, 2021, and on certain property owned by trusts, partnerships and other non-corporate entities on Jan. 1, 2022.

These capital gains proposals are highly controversial and unlikely to be enacted without changes for infrastructure legislation considered under budget reconciliation not requiring Republican votes to be enacted. However, some changes in capital income taxation may be included in such an infrastructure reconciliation bill.

Individual: Sharply Limit Deferral of Gain from 1031 Like-Kind Exchanges (raises over 2022-31: $19.6 billion)

The Greenbook would limit the deferral of gain up to an aggregate amount of $500,000 for each taxpayer ($1 million in the case of married individuals filing a joint return) each year for real property exchanges that are like kind. Any gains in excess of threshold would be recognized in the year of transfer.

This proposal would disrupt many real estate transactions planning to use the section 1031 like-kind exchange, most of which would likely be subject to the proposed limitation. Given how widespread the usage of 1031 like-kind exchanges are in real estate finance and how the limitation would raise a relatively small amount of revenue, it does not appear likely this proposal would advance in Congress. After a vigorous debate, Congress recently limited 1031 like-kind exchanges just to real estate in 2017. A further limitation after such a fight appears unlikely.

Next steps

The FY 2022 Greenbook will serve to inform ongoing infrastructure negotiations between the White House and Congress, but like the proposed direct spending levels in the discretionary budget, it represents an opening bid in negotiations with Congress and would likely change.

While the White House is continuing to reach out to Senate Republicans to see if a bipartisan compromise on infrastructure might be possible, in light of the continuing gap in the positions of the parties of about $700 billion to 1 trillion, it appears likely that congressional leadership will likely soon to turn considering infrastructure on a partisan basis via budget reconciliation. Stay tuned.