Even before he took office, President Biden had proposed a cap on 1031 exchanges that would cap the deferral at $500,000 per year. There was a very strong pushback on that from people who do conservation easements, people in the banking sector, developers, and a whole spectrum of real estate related trade associations. The bottom line is that restricting 1031 exchanges would really hurt the economy and the expected increased revenue is a fallacy because people will simply choose not to sell their real estate if this 1031 incentive is taken away.
Incentivizing Investment
Essentially, this added tax would act as a disincentive for velocity in the real estate marketplace. It wouldn't be a very good Revenue raiser and it would have a really adverse effect on real estate values and redeployment of cash in the marketplace.
There is also a compelling argument that real estate owners, unlike owners of stocks and bonds, are paying taxes the entire time they're owning a piece of real estate, because at the state and county levels they're paying property taxes. They may also have to pay mortgage registration tax and other assessments that may be applied.
So unlike other vehicles of investment, an investor in real estate is being taxed while they're owning the property - just not by the federal government.
100 Years of 1031 Exchanges
This year marks the 100-year anniversary of the 1031 exchange. This provision has been in the tax code for a long time to facilitate the transfer of capital to those segments in the marketplace where we need infrastructure.
1031 exchanges provide private infrastructure, whether it is housing, warehouse, retail stores, etc. We need to encourage this type of private infrastructure just as much as we need public infrastructure like roads and bridges.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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