Here We Go Again…President Biden’s FY 2024 Budget once again puts Section 1031 in its cross hairs. Please note in addition to this, other components include increasing the capital gains tax rate from today’s 20% to nearly doubled at 39.6%. Also mark to market once again rears its ugly head.
Below is the FEA update, please stay tuned for more.
President Biden today released the details of his annual budget proposal, and it again includes Section 1031. According to the proposal:
“The Budget also saves billions of dollars by closing other tax loopholes that overwhelmingly benefit the rich and the largest, most profitable corporations. This includes closing the so-called “like-kind exchange loophole” that lets real estate investors defer tax indefinitely, reforms to tax preferred retirement incentives to ensure that the ultrawealthy cannot use these incentives to amass tax free fortunes, and closing a loophole that benefits wealthy crypto investors.”
The full details of the President’s tax proposals are available in the “General Explanations of the Administration’s Revenue Proposals” or Treasury “Green Book”. The Section 1031 proposal is a cap at $500,000, the same as last year ‘s budget, and is described on page 135 (see attached pdf).
“The proposal would allow the deferral of gain 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) in a year would be recognized by the taxpayer in the year the taxpayer transfers the real property subject to the exchange.”
FEA has built a strong defense with the 1031 real estate coalition, updated economic studies, hosted multiple congressional fundraisers, and attended numerous meetings with congressional staff to educate members of Congress. We will continue to fight for Section 1031 and need your assistance. Following are some things you can do to help with Section 1031 advocacy efforts:
- Send a letter to Congress. An UPDATED grassroots letter is available for you to send to your members of Congress urging them to preserve Section 1031 in full. You can access the letter on the take action page of the FEA’s advocacy website. Tell Congress: Section 1031 Like-Kind Exchanges Matter (1031buildsamerica.org)
- Attend FEA’s Midyear Meeting April 25 and 26 in Washington, DC. Join FEA’s advocacy efforts by attending the Midyear Meeting at the Melrose Georgetown Hotel in Washington, DC on April 25 and 26. You can register at 2023 FEA Midyear Meeting Registration and book your hotel room at Melrose Georgetown Reservations. House Ways and Means Committee Chairman Jason Smith (R-MO) is scheduled to give a legislative update to FEA members on Tuesday, April 25 at 2:15pm ET. On Wednesday, April 26, join your colleagues for visits to congressional offices on Capitol Hill to discuss the importance of Section 1031.
- Talk with your contacts about preserving Section 1031. Below are the comments FEA is sharing with members of Congress about the proposed cap. Please feel free to use them in your comments with colleagues and friends.
Section 1031 is an important tool used by business owners, farmers and ranchers, middle-class taxpayers and others to transition into locations that more efficiently meet their needs, instead of being tax-locked into obsolete assets.
The proposed cap on like-kind exchanges at $500,000 is misguided because larger investors are critical to repurposing and renovating commercial real estate in our post-pandemic economy. The COVID-19 pandemic imposed unexpected and unprecedented trauma on commercial property – particularly retail, hotel and office space. A significant percentage of these properties need to be repurposed.
These are the types of large-scale projects that revitalize entire neighborhoods, generate significant job growth, and result in widespread community improvement. Section 1031 is an effective tool to encourage this activity while avoiding market disruptions. Allowing businesses to continue to utilize Section 1031 prevents many assets from becoming shuttered blight.
Additionally, recent economic impact studies concluded that like-kind exchanges are a powerful stimulant of transactional activity that, in addition to the benefits described above, generates significant local and Federal tax revenue and contributes to the health of the U.S. economy. The studies found that exchanging buyers make real estate investments that are substantially greater than non-exchanging buyers, resulting in improved communities in which to live, work and play. These studies quantified that limiting or repealing Section1031 would cause significant economic contraction and job loss.
Most importantly, under Section 1031, taxes are merely deferred, not eliminated.
Click Here to Download the PDF
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
