It appears that Joe Biden is focused on making real estate investors help pay for his proposed programs. According to Bloomberg News, Biden’s team stated that Biden is intent on eliminating any significant 1031 exchanges and real estate losses being used as a tax deduction.
Thoughts?
If there are smaller returns then the market will “adjust accordingly.”
I personally give this a ‘meh’. I know I personally wouldn’t pay significantly less for a property if 1031 exchanges are eliminated (and I’ve benefited from a 1031 exchange before). Plus 1031 exchanges benefit short term stakeholders vs long term stakeholders.
The US President, contrary to the belief of the incumbent, isn’t a dictator. Biden cannot just “make it so”. Amending the IR code would require getting bills through Congress.
That said, the excesses of the present administration need to be paid for … somehow. The pendulum is swinging against the rich and for most people “the rich” are anyone more prosperous than they are. Who pays directly will depend upon things like whose lobby is most influential. So if you think removing the 1031 Exchange rule is A Bad Thing, you and your state real estate investor groups had best start educating and influencing your congressional representatives and senators on November 4.
I think it would be a very hard concept to actually get through Congress. At best, it would be watered down to chip away at specific types of exchanges vs all of them. But even if that does happen, it opens the door to continued future chipping away, so still something to be aware of. Personally I’ve benefitted from 1031 several times but think it’s way too broad and prone to abuse and should become more refined to more truly be “like for like”.
Who knows or cares of this is true? Are you willing to give up our democracy for a 1031 exchange?
If 1031’s are eliminated most of us will simply pivot our strategy.
Instead of Trading up we will pull a cash-out Refinance and buy a smaller property.
I would expect to see more owner carry back deals.
Why would I sell my property just to pay a HUGH tax? I’ll just keep it. My kids can pay the taxes.
SDguy
or more important to what they (the gub) are trying to accomplish, you’re kids will pay no taxes with a stepped up cost basis upon inheritance… right?
Kids will get the step up in Basis and be able to depreciate the portfolio again.
If Ds sweep that will end as well.
I don’t think so. Last time I read the Constitution it says
" Nobody can take away step up in basis or depreciation expense from Mr. Windle"
LOL Just kidding.
I’d just pivot.
I would hire my kids to run my business and have them slowly vest in Shares of my LLC’s (an Earn Out type agreement).
Yeah, they will have to pay Income taxes on it and I’ll have to pay capital gains tax, but that will be cheaper than 50% estate tax.
Political rhetoric. Don’t give it much thought. They’ve been after Sec 1031 for decades. So, they might eliminate it. They might not.
As to Real Estate losses being a tax deduction, that’s old news. Pretty much eliminated already, except for a few chosen ones… and anyway, we don’t want losses! If you are a MHP owner and your park is running at a loss, you have a much bigger problem than tax benefits!
I’m a CPA with decades of experience.
I am clearly aware that the absolute lack of control of real estate investments from our state can lead to quite sad economic consequences for our country.