Does President Trump's new tax plan threaten 1031 exchanges?
There have been many rumors from various sources recently about limiting the 1031 tax-deferred exchange. Now we see that the President wants to eliminate all tax deductions, except for mortgage interest and charitable contributions. His plan also says they want to remove any tax deductions which benefit primarily the rich. Reading between the lines, I think this spells doom for the 1031 tax-deferred exchange.
Now I'm not rich, but I have made use of the 1031 tax-deferred exchange and my investment plan relies on it to limit capital gain taxes and depreciation recapture and provide for my heirs. The 1031 increases real estate investment activity which is a good thing for the entire country, not just a few rich investors. The jobs and capital flow which result from building, buying and selling real estate stimulate the entire economy, especially during the last decade when it really needed stimulation which didn't come from government spending. You may argue that tax cuts ARE government spending, but this is illogical to me, because the earnings are the investor's to begin with, not the government's and the government doesn't earn anything. And it's not a particularly good steward of our tax dollars either, if you ask me.
Going one step further, the Fed's zero-interest rate policy (ZIRP) has penalized savers and bond investors by denying them a real return. If someone was looking for an alternative investment providing a reasonable rate of return which was safe and kept pace with inflation, real estate was the only game in town. Now the government just can't stand all this potential tax money they are missing out on. They want their "fair share" and this policy adds insult to injury to creative investors who are seeking to safeguard their savings in alternative investments.
If you're interested in saving the 1031 tax-deferred exchange from government raiders, I urge all of you to browse to http://www.savethe1031.org/ so that you can quickly and easily make your wishes known to your elected representatives.
Thank you and good investing,
B