New Threats to Section 1031 Like-Kind Exchanges...

1031 Exchanges
6yFollow

New Threats to Section 1031 Like-Kind Exchanges...

Celia Moore
Specialist · Portland, OR · Member since 2020 · 97 posts · 109 votes

In our almost 30 years of time in the 1031 Exchange business, we have had at least a half dozen serious attacks on Section 1031’s existence. Although the 1031 Exchange has been in existence for almost 100 Years, it is once again in jeopardy! There is a serious possibility of a major change in power in the federal government after this Fall's election, and with this change we are hearing proposals that could almost double Capital Gain’s Tax Rates, eliminate the Step-Up in Basis and remove Section 1031 Exchange…

FEA Leadership and GAC are very aware the presumptive Democrat Presidential nominee, Joe Biden, has a tax plan that will eliminate many “tax loopholes.” Section 1031 is targeted to be eliminated as an unnecessary “tax loophole” in the Biden Administration’s tax proposal. If this were to happen, the 1031 exchange and the corresponding industry would cease to exist! As further information becomes available we will be distributing it, but in the meantime please be alert to possible changes and do your best to inform clients and fellow professionals of the possible upcoming changes.

Every few years we hear how an election is potentially the “most important ever” and guess what? This time it may actually be true. This is the time to make a difference!

To read more head online to 1031.org or 1031taxreform.com/FEA

Best of health to all!

6Reply
45 views

Most Popular Reply

Jaysen Medhurst
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
6y

@Celia Moore, according to the Center for Responsive Politics, the RE industry spends as much as $162MM per year on lobbying. Joe Biden has received over $4.75 directly in 2020 and has owned at least one rental property in the past. Nancy Pelosi owns at least 2 investment properties and has interests in at least 6 RE companies. Overall, members of congress have between $100MM and $380MM of direct investments in Real Estate.

In the 2017 Tax Bill all like-kind exchanges except for Real Estate were eliminated. 

Knowing all of that, do you think there's a realistic chance that 1031s are going away? I don't.

5Reply
See this reply in the discussion

25 Replies

Jump to latestLatest
  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    @Celia Moore, according to the Center for Responsive Politics, the RE industry spends as much as $162MM per year on lobbying. Joe Biden has received over $4.75 directly in 2020 and has owned at least one rental property in the past. Nancy Pelosi owns at least 2 investment properties and has interests in at least 6 RE companies. Overall, members of congress have between $100MM and $380MM of direct investments in Real Estate.

    In the 2017 Tax Bill all like-kind exchanges except for Real Estate were eliminated. 

    Knowing all of that, do you think there's a realistic chance that 1031s are going away? I don't.

    5Reply
  • Celia Moore
    OP
    Specialist · Portland, OR · Member since 2020 · 97 posts · 109 votes
    6y

    @Jaysen Medhurst hearing all of that... I sure hope not! Eliminating or limiting like-kind exchanges in the best of times would have a negative economic impact, increasing the cost of capital, slowing the rate of investment, increasing asset holding periods, and reducing real estate transactional activity. In the face of the current COVID-19 pandemic, recession and economic upheaval, the contractionary impact on the U.S. economy and real estate industry would be severe.

    Like you stated, the 1031 Exchange has made it out of this alive before, but it is still a scary threat to once again have over our heads. For all the reasons you have listed and more, I pray it makes it through another round of eliminations. 

    1Reply
  • Michael Haynes
    Investor · Tampa, FL · Member since 2016 · 679 posts · 288 votes
    6y

    The Threat from the Left when they do get power again to ruin our Economy. The elimination of the 1031 Exchange Rule. The Debt load never being able to be paid back. What about the Tax-free Sale of your Residence? Trump wanted to make that 5 out of the last 8 years? It is said that the Polititians also own a lot of Real Estate and why would they "cut off their noses to spite their faces?" Martin Armstrong Says that if you want to see our Future, you only have to look at Europe. Negative Interest rates, a Cashless Society so that no one can escape paying the Tax. Whether it is the App on your phone or a Credit Card or The Mark of the Beast with a Chip inserted in your hand, you will need it in order to Buy and Sell anything. They taxed everything they could including the Value Added Tax and that wasn't enough. Now, the EU has decided to turn their Pension Funds into Annuities where they declare the Principal impossible to pay back and only service the Interest Debt, forever. I wondered when President Reagan turned us from a Creditor Nation, into a Debtor Nation...what is going on? Then, the light went off and I saw that this was going to be a Race to the Bottom and our Government wants "US" to owe "Them" more than when the whole World Banking System collapses for good. 

    https://www.armstrongeconomics.com/

    0Reply
  • Steven Rich
    Real Estate Consultant · Panama City, Panama · Member since 2016 · 29 posts · 7 votes
    6y

    I personally sold real estate and bought other income producing properties using the 1031 Like-Kind Exchange process back in the 1980s. The system worked well for me and for the U.S. economy. That's because it requires re-investing the sales (exchange) proceeds into buying more real estate. 

    It's not a loophole allowing a taxpayer to "keep the profits tax-free". Quite the opposite. 

    It will be a big loss to the U.S. real estate industry to lose this tax-deferral tool to keep buying more real estate.

    2Reply
  • Michael Haynes
    Investor · Tampa, FL · Member since 2016 · 679 posts · 288 votes
    6y

    Hello Steven Rich. The easiest way to get into Real Estate Investing is to save up to buy your first Home. You can live in it for 2 out of 5 years and Sell Tax-free as your Residence. If you go along with the Government Plan for Real Estate Investing and add on one fixer-upper to 1031 Exchange over and over again until you are ready to sell your Residence, then, when you move into your 1031 property and live there for two years, you can sell that one Tax-free up to $250,000 Profit. The problem is that the majority of adults do not want to move every few years to make this Plan work. When I talk with the younger ones on the street, they are surprised that this sort of Plan exists at all. They are stymied by the thought of actually saving enough Money for a Down Payment and they know nothing about First Time Homeowners Plans etc. I owned a small portfolio of Rentals in S. Tampa for 30 years. I am Selling my last one as my Residence and making at least $50,000 Tax-free next month. I just sold my 4 Commercial lots and bought a 3/3 Townhome All Cash. The Bank will give me a HELOC as I own the Townhome outright and have a lot more Cash. I am buying the two houses next door from my friend, in 3 yearly Installments, for $170,000. $50,000 the first year, $60,000 the second year and $60,000 the third year without any Interest. I will rent the 5/2 as an Airbnb. If it works out, that will be my Buy and Hold that I hope to make up to $2000 a month from for my retirement, plus this and than and all the other Daily Cash Flow vehicles. The idea that you need to be a Millionaire or have more than 10 Doors is the Big Mountain that the Newbie cannot see how to climb. Tax-Advantaged and Tax-free Investments are set up to encourage people to start Investing and try to realize the American Dream.

    1Reply
  • Steven Rich
    Real Estate Consultant · Panama City, Panama · Member since 2016 · 29 posts · 7 votes
    6y

    Michael, You are correct. I knew of one person who did 1031 Exchanges multiple times until he moved into a multiplex he bought and decided to live there and convert it into a single family home. After living there many years, he sold it and used the tax exemptions for the sale of a primary residence and all of the deferred accumulated taxes were forgiven. He saved a lot of money using that method. 

    1Reply
  • Scott Green
    Member since 2019 · 13 posts · 11 votes
    6y

    @Steven Rich  That is a good play in using the 1031 exchange to defer the taxes, and then with the appropriate timing in place, you can convert the property to a primary residence.  Under those rules you can exclude up to $500,000 of gain.  However, don't forget that you have depreciation recapture that will require some taxes to be paid in this type of maneuver.  Keep on building and growing your portfolio.

    0Reply
  • Steven Rich
    Real Estate Consultant · Panama City, Panama · Member since 2016 · 29 posts · 7 votes
    6y

    Scott, good point. The best tactic is to wait until you die and your heirs use the stepped up basis to side step the deferred taxes when they inherit the properties. I've heard of estates using that tactic to save $ millions in deferred taxes for the heirs. 

    1Reply
  • Mark Creason
    Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
    6y

    In 2017, we were worried that Kevin Brady (Chairman of House Ways and Means) wanted to kill the 1031 exchange.  Somehow it was saved, but they did eliminate the SALT deductions.  We are now capped at 10,000 deduction on principal home taxes.  I think we need to save the 1031.  I think trying to blame Democrats is not helpful, as the Trump administration has tried to kill it already.  I think the real estate community needs to contact our reps and senators to let them know we want to keep this.

    Mark

    2Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    "Knowing all of that, do you think there's a realistic chance that 1031s are going away? I don't."

    Well, if Biden wins and if Ds flip the Senate, what's to stop them?  They knew they blew it when they owned the world in 2009, so assuming Nancy's got a little grip on reality, it''ll be a way to raise taxes.

    BTW - Nancy's husband made a ton off investment real estate (Financial Leasing Services).

    1Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    "I think trying to blame Democrats is not helpful, as the Trump administration has tried to kill it already."

    Proof on Trump trying to kill the 1031 please?  Remember how he/his father made their money.

    3Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    "The best tactic is to wait until you die and your heirs use the stepped up basis to side step the deferred taxes when they inherit the properties."

    For now.  I'm sure it's on the table.

    1Reply
  • Michael Haynes
    Investor · Tampa, FL · Member since 2016 · 679 posts · 288 votes
    6y

    Hello Mark Creason and the ones worried about our Real Estate Tax incentives being taken away. One thing to remember is that the Politicians that are spending all the Money without any intentions to ever pay the Debt, they also own Real Estate. Maybe, Kevin Brady does not own his own home or Investment properties, like the Clinton's and Obama's, until after they left the Presidentcy. We concerned individuals who try to make a living with Real Estate Investing have to wake up one morning and just realize that, "the Politicians spent all the Money!" At some point, there is a mathmatical number that is reached where All of the Tax Money Collected goes to just Paying the Interest on the Debt. Raising the Taxes only hastens our arrival at that point. One by one, the Tax-free or Tax-deferred advantages in Real Estate Investing are going to be eliminated by the Politicians. Trump tried to make the Tax-free Sale of your Residence Rule, 5 out of 8 years instead of 2 out of 5 years and that would have ruined my plans as I am 72 and selling my current Residence for a Tax-free $50,000 Profit. Martin Anderson says that if you want to see the direction we are headed, then, just watch what they do in Europe. The European Union has decided that they will never pay the Principal on their Government Pensions. You need at least 8% on Fixed Income Investiments to be able to service Pensions and the Europeans have Negative Interest rates in their Banks. You have to pay the Bank to hold your Cash and that is why they are going to force everyone to go to a Cashless Society. That way they know where all your Money is and they get to Tax it to the Max. You are their Cash Cow. They are making Cash Ilegal by changing the Currency to new bills and outlawing the old ones. You can't hold your Cash under your mattress because they make it worthless. Same with Gold and Sliver. They will just outlaw it. You go to prison if you try to hide your Gold. Their solution is to turn the Pensions into Annuities and only pay the Interest on the Pension Money and to do that, they want to raise Taxes 400%. Here in the US, the Teacher's, Firemen and Police Pensions are way underfunded in Cities like Chicago, New York and California. Those Pensions are not going to be paid. The Covid 19 Rescue Fund is being held up right now, by the Democrats who want 3 Trillion Dollars to give to the States that don't have the Money to pay the Pensions. Wake up America! We are in the process of watching the Government seize and spend All Our Money, like Drunken Sailors. It's like we are the Frog in the Frying Pan of water. As the Heat is turned up...the Frog does not feel too bad. Then, more Heat is added and it becomes uncomfortable. Then, more Heat and the Covid Virus and from the bottom, up, the people begin to feel the Pain and some businesses actually died. I worked in the Oil Field on ships etc. and the Arabs have a saying..."Grandfather rode a Camel. My father rode in a Ford. I ride in a Lexus and fly in a private jet. My son drives a Jeep. My grandsons will ride Camels." That is one way of looking at the Big Economic Picture that we are facing. Forwarned is Forearmed, people.

    1Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    "One thing to remember is that the Politicians that are spending all the Money without any intentions to ever pay the Debt"

    I think once they do this and the environment is right, then they'll use the deficit as an excuse for more taxes.  Of course, it won't be used to pay down the debt, when has it ever?

    1Reply
  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    6y

    @Celia Moore I think it is important to look at the real estate climate as a whole. Putting fear into an election as a way to gain votes one way or another is ill advised. The President of the US should be a leader, not a fear monger, tyrant, or executive order maker. A leader brings people together to talk about the issues not pushes them apart. This applies to those politicians on both sides of the isle. Fear what you wish, but that fear should not deter you from voting one way or another. 

    1Reply
  • Anthony B.
    Specialist · NY · Member since 2016 · 5 posts · 1 vote
    6y

    @Celia Moore

    I would like to copy and paste your words in posts in various social media outlets. Is that ok with you? It will look like it’s just coming from me

    0Reply
  • Michael Haynes
    Investor · Tampa, FL · Member since 2016 · 679 posts · 288 votes
    6y

    Hello BP Members, I am trying to point out that the step by step details of the Journey to the Bottom, do not matter. All the Worlds Governments are on a Race to the Economic Bottom and Control of All Your Money. Do you want to end up as the Goody, Goody, Creditor Nation with everyone else owing you Trillions of Dollars as Debtor Nations that will never be able to pay? 

    0Reply
  • Rob Pecha
    Specialist · New York City, NY · Member since 2019 · 53 posts · 28 votes
    6y

    @Celia Moore same here. Would it be Ok if I reposted on LinkedIn to run it by my networks?

    0Reply
  • Percy Matsunaga
    Flipper/Rehabber · Sacramento, CA · Member since 2016 · 282 posts · 85 votes
    6y

    @Celia Moore

    Just in August 7th, Mr President Trump stated that he will be deferring the capital gains tax for the 2020 year and possibly 2021 if he gets elected again!!

    1031 exchange can be another avenue if we do not have to pay cap taxes if we sell.

    1Reply
  • Mark Creason
    Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
    6y

    @Steve Morris

    https://www.ipx1031.com/ipx1031-president-meets-chairman-brady-save-1031-exchanges/

    https://irei.com/publications/article/1031-exchange-survives-tax-reform-roller-coaster-year-ends-tax-code-changes-favorable-real-estate-investors/

    http://1031-exchange-news.com/2017/11/

    Kevin Brady wanted to eliminate the full 1031 exchange with Trump's support.  He only got the personal property exchange killed because the real estate community made many calls to house and senate members to save the real property 1031.



    1Reply
  • Mark Creason
    Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
    6y

    @Percy Matsunaga

    Trump has signed an executive order to add an inflation adjustment to the cap gains.  Although this may be wishful thinking, but the President enforces tax law, but does not create it.  If you may recall watching school house rock as a kid, tax bills are first created in the House and then sent to the Senate, and when approved, go to the President for his signature.

    Real Estate has a lot of great incentives to make lots of money.  We have depreciation, Section 121 principal residence exemptions, the 1031 exchange, installment sales, cost segregation, capital gains, and others.  If we keep pushing the envelope, one day, we will have a "Bernie Sanders" come in and take all this away.

    Mark

    1Reply
  • Celia Moore
    OP
    Specialist · Portland, OR · Member since 2020 · 97 posts · 109 votes
    6y

    @Anthony B. My company is a nationwide 1031 Exchange resource, if you would like to share my comments I will send you our latest newsletter for you to source! I do not want our notes used as your own words. 

    0Reply
  • Celia Moore
    OP
    Specialist · Portland, OR · Member since 2020 · 97 posts · 109 votes
    6y

    @Rob Pecha My company is a nationwide 1031 Exchange resource, if you would like to share my comments I will send you our latest newsletter for you to list as your source. 

    0Reply
  • Rob Pecha
    Specialist · New York City, NY · Member since 2019 · 53 posts · 28 votes
    6y

    @Celia Moore sounds good and thank you! 🙏

    1Reply
  • Celia Moore
    OP
    Specialist · Portland, OR · Member since 2020 · 97 posts · 109 votes
    6y

    @Rob Pecha great thank you! 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free