Capital gains tax worries fuel year-end rush


Investment volumes are soaring at the end of the year. Newfound confidence and a rapid recovery from the pandemic are helping fuel activity, but there’s another reason investors are motivated to sell: capital gains taxes. Fears that the tax law will change, and in particular that capital gains taxes will increase, are driving investors to sell properties before the clock strikes 2022.

“A lot of sellers don’t know what the tax law will look like in 2022 as they continue to move the goal post,” Michael Fay, general manager of Avison Young’s Miami office and president of markets, told GlobeSt. American capital. com. “The sellers have said they want to lock in a sale in 2021 as opposed to 2022, because here we mean that anything after 2022 could fall into a new category.”

When the Biden administration took office, investors were initially concerned about changes to the 1031 Trade Act; however, these concerns turned out to be unfounded. “We have more clarity on the 1031 component, so there’s less of a problem or risk with that, but there’s a question about what’s going to happen with capital gains in general,” Fay explains. “If you’re not going to do a 1031 exchange, or if you want to do something different, what’s the tax ramification?” “

From the buyer’s perspective, low interest rates encourage transactions. Interest rates are at historically low levels and Fay doesn’t expect that to change anytime soon. In fact, he thinks we are heading into a prolonged period of low interest rates with credit cycles, like in Japan. However, the post-pandemic inflation spurt is putting pressure on interest rates. “I think the prices will go down from where they are, but they will be higher than the prices before the pandemic,” he said. “The question is, how much inflation are we going to have and how long is it going to continue.”

Industrial and multi-family dominated the end-of-year transaction flow, but there is demand across all segments of the market. “When you think about the amount of capital available in the market today, coming from both private clients and larger institutional capital, there is a lot of money looking for opportunities, and now it is to several asset classes, ”explains Fay.

For more opportunistic buyers, Fay sees strong demand for retail, which he says will return in 2022, and hotel assets.


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