A 1031 exchange is part of the IRS tax code, allowing real estate investors to defer taxes by exchanging “like-kind” properties. The term “like-kind” refers to the nature or character of the property. These properties must only be used for business purposes or held as investments.
The proposal would allow the deferral of gains up to an aggregate amount of $500,000 for each taxpayer ($1 million in the case of married individuals filing a joint return) each year for real property exchanges that are like-kind. Any gains from like-kind exchanges in excess of $500,000 (or $1 million in the case of married individuals filing a joint return) a year would be recognized by the taxpayer in the year the taxpayer transfers the real property subject to the exchange.
As an agent that has worked with clients making 1031 like-exchanges, I can see the impact that this could have moving forward if approved. President Biden’s proposal to limit 1031 exchanges would severely limit the property values investors can use and also adversely impact the overall U.S. economy. If the proposal is approved, savvy wealthy investors would likely just hold on to property in response — expecting that the tax code will change once again.
You can read the full article here: Op-ed: What Biden’s proposed limits to 1031 exchanges mean for investors and the economy