Danger lurks in Biden plan to Cap Like-Kind 1031 Exchange

7 Replies

What do you all think about this cap and the statistics below? President Biden’s “Build Back Better” tax proposals could be devastating to anyone owning Real Estate... The three issues I have been following most closely are Capping 1031 Exchanges to $500k per person per year, Elimination of the Stepped-Up Basis and Increasing Capital Gains Tax Rates to as much as Normal Income Tax, i.e. 37% (Current with 39.6% Proposed) Federally. On top of the 39.6% most States will add their tax and finally many taxpayors are still subjected to the Obama Health Care Tax of 3.8% on top of everything else!

The worst thing (so far) on these proposals is that new tax rates WILL BE RETROACTIVE TO APRIL of 2021. On the bright side, any change 1031 will be effective January 1, 2022. So, if you have a property you’d like to 1031 with gains beyond the $500k number you should try to get the deal done before year’s end! The Biden Tax Proposals also contain “Mark to Market” provisions in gifting and distributions from LLCs (Limited Liability Company) ...

"A 2019 macroeconomic study by Ernst & Young concluded that if section 1031 were limited or repealed, it would shrink GDP. (https://www.1031taxreform.com/1031economics/)

The study further projected benefits from 1031 exchanges nationally for 2021 and concluded that these transactions will:

• support 568,000 jobs, representing $27.5 billion in labor income and generating $5 billion in Federal income taxes;

• generate $6 billion annually in Federal taxes from foregone depreciation on replacement properties;

• generate $2.8 billion in state and local taxes;

• add $55 billion to the GDP." 

Data from: Bill Brown and Dan Wagner
Jul 29, 2021 https://www.bizjournals.com/po...

@Celia Moore

I think the number of subject to and actual property trading will go up. You'll see more tax collected per taxable event but the total number of taxable events drop drastically. Total tax collected from investors will decrease overall.

I truly cannot fathom how anyone involved with real estate can see anything but problems with the current tax proposals. Whether speaking of the $500k cap on 1031, almost doubling of the top Capital Gains tax rate, elimination of the Stepped Up Basis, Gifting Tax changes or the Mark to Market on simple distributions from an LLC (just to name a few) it's all bad for the middle class and anyone with real estate!

The biggest problem I currently see is that no one is talking about much beyond the 1031 issue and Stepped up Basis. Consider the fact the increased tax rates are RETROACTIVE TO APRIL 2021! (In proposal at time of this writing) This issue alone is potentially devesatating to anyone that is trying to plan ahead by selling before changes occur! ANYONE selling today to realize gain is truly rolling the dice...

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