Brian Wallace, a tax partner focusing on automotive retail at Withum, of Princeton, N.J., agreed the proposed capital gains rate boost has the potential to dampen the buy-sell market.
"What we end up with is probably about 25 percent less in proceeds at the end of the day when you do the transaction," Wallace said. "If you've got somebody that is selling a dealership group for $80 million, and now they're getting $60 million, that potentially is a deal-breaker."
Brady Schmidt, president of National Business Brokers, a buy-sell firm in Irvine, Calif., said if capital gains tax hikes are approved by Congress, "I think that will drive a pause, a little bit of a slowing down of the market. If it doesn't happen in the beginning of 2022, then I think that the market will continue to be in a bit of a frenzy for the next 18 months."
Dan Murphy, managing member of D.T. Murphy & Co. in Glen Ridge, N.J., said he has been reaching out to potential sellers to discuss the threat of the capital gains tax hike and possible changes to the real estate like-kind exchange, known as a 1031 exchange because it falls under Section 1031 of the IRS Code.