Biden administration capital gains and 1031 exchange

Rental Property Investor · Houston, TX · Member since 2017 · 40 posts · 20 votes

I'm not sure if this has been discussed, or discussed lately, but Biden announced his proposal to almost double the capital gains tax rate for high earning individuals to 39.6%, and up to 43.4% for some.

He has floated eliminating the 1031 exchange in the past, but I don't see that discussed in this latest proposal.

I have a property with over $200k in capital gains in it. Do these bills usually have a period of time before they are enacted to give investors time to do an exchange?

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
5y
Originally posted by @Chuck H.:
I'm not sure if this has been discussed, or discussed lately, but Biden announced his proposal to almost double the capital gains tax rate for high earning individuals to 39.6%, and up to 43.4% for some.
He has floated eliminating the 1031 exchange in the past, but I don't see that discussed in this latest proposal.
I have a property with over $200k in capital gains in it. Do these bills usually have a period of time before they are enacted to give investors time to do an exchange?
Most tax laws become effective in new tax years, so anything that happened I would suspect would go into effect 1/1/22.

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Sean RossPro Member
1031 Exchange Qualified Intermediary · Denver, CO · Member since 2017 · 174 posts · 96 votes
5y
Let me reiterate what @Account Closed

I work with the government relations wing of the Federation of Exchange Accommodators. There are dozens of good industry groups, such as the DST Sponsor that Phil mentioned, that are fighting the good fight on The Hill to keep 1031s around.

Biden never specifically said he would eliminate 1031s. One of his policy aides did release a working paper back during the campaign that referenced disallowing 1031s for high-income earners. How that would work is up for much debate.

I think the odds of 1031s staying around are good, but certainly nowhere near 100%.

IF a bill is passed that does eliminate or significantly hampers 1031 exchanges, it would probably go into effect in the next calendar year or two (i.e. Jan 1 2022 or 2023). However, it is possible for some provisions to go into effect immediately or even retroactively. There is some precedent here. Odds of this are slim, but it's possible.

The capital gains rates are almost certainly going to go up substantially for high-income taxpayers.

These changes won't come through during the "Infrastructure" Bill. They are likely to be on the table as a "pay for" for the following large spending bill, however.
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