1031 Exchange Series: Legislative Clarity & Emerging Alternatives

The Need for Legislative Clarity

 

In the last 100 years, 1031 exchanges are responsible for creating a ton of revenue, jobs, investments, and economic benefit to the nation. During his campaign, Biden stated he “wanted to completely end the 1031 exchange tax break.” While this is unlikely, it remains unclear as to how the $500,000 limit is being imposed.

 

Is this…

 

• A $500,000 annual limit for each taxpayer during the year?

• A transaction limit taxing gains from any disposition exceeding $500,000?

• A $500,000 limit per year on gains from any one property?

Biden also proposed raising the long-term capital gains tax rate up to 39.6% for those earning over $1 million a year. Fewer real estate deals means less tax revenue. New York City saw a 49% decrease in commercial and residential sales in 2020, missing out on $1.2 billion in tax revenue from real estate.

 

In the past, significant taxation of real estate has disincentivized people from selling so many may hold off on doing so until a new administration lowers capital gains rates. Housing inventory and affordability will drop sharply. Fewer investors wanting to sell will only worsen the existing housing crisis.

 

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