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Did Biden ’ s Tax Proposal End Up Affecting 1031 Exchanges ?

By Clinton Lu , TFS Properties
Photo by Nataliya Vaitkevich from Pexels

Earlier this spring , Biden proposed a number of tax law changes in regards to his Build Back Better program . Aimed at freeing up more money for the little guy , the program divided itself into various parts , one of which was the American Rescue Plan . Within this plan , Biden proposed to do away with the benefits received by performing a 1031 exchange , also known as a “ like­kind ” exchange , but was this portion of his proposal signed into law ?

Section 1031 Like­Kind Exchanges
The IRS Code is divided into sections , one of which details the tax break individuals can take advantage of when it comes to the capital gains taxed on real estate . This particular section , allows investors to roll their profits from a real estate sale into the purchase of another property of the same , or like , type . In doing so , investors defer the capital gains tax that they would typically incur , and are able to reinvest all of the money from their sold property ( downleg ) into different investment property or properties ( upleg .)
Possible Effects of Biden ’ s Tax Proposal
emphasizes that its tax increases would affect only the top 1 % to 2 % of individual taxpayers ,” but doing away with 1031 Exchanges would seriously impact both big AND small investors alike .
Both big and small investors can benefit from performing a 1031 Exchange and according to the Congressional Joint Committee on Taxation , investors could save over $ 40 billion in taxes in the next three to four years if it were to remain in place . That ’ s money that could — and in many cases , will — be reinvested into other real estate properties and further drive the economy .
This cycle within the real estate industry was so important that the Mortgage Bankers Association and the National Association of Realtors appealed the proposal to halt the exchange . As a result , it seems their efforts , as well as the voices of many others , prevailed .
The Final Verdict
Many feared that ending Section 1031 exchange benefits would have a profound effect on the real estate market . However , this particular part of Biden ’ s tax proposal was not signed into law . Investors can still defer their taxes on capital gains through a 1031 Exchange and preserve their capital while doing so .
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