|President Biden has released his proposed budget for 2024, which again looks to eliminate 1031 like-kind exchanges. A 1031 exchange is a tax-deferred exchange from Section 1031 of the Internal Revenue Code (IRC) that allows real estate investors to defer capital gains taxes when selling one investment property for another. This tax-deferred exchange involves using the proceeds from the sale of the relinquished property to acquire another like-kind piece of real estate of equal or greater value.
In a statement from the White House on Thursday, like-kind exchanges were referred to as a “sweetheart deal.”
“Eliminate Tax Subsidies for Real Estate. The Budget saves $19 billion by closing the “like-kind exchange” loophole, a special tax subsidy for real estate. This loophole lets real estate investors – but not investors in any other asset – put off paying tax on profits from deals indefinitely as long as they keep investing in real estate. This amounts to an indefinite interest free loan from the government. Real estate is the only asset that gets this sweetheart deal.”
Help Us Preserve Section 1031
|This isn’t the first administration to attempt to eliminate or change Section 1031; it’s a natural target for the Biden administration to generate additional revenue for the IRS. In April 2021, President Biden announced the “American Families Plan,” which proposed to cap like-kind exchanges for gains greater than $500,000.
After this plan was released, 1031 Crowdfunding launched a campaign strongly opposing the proposed changes. With your help, we were able to facilitate the sending of over 1000 letters to Congress voicing concern over the economic impact these changes would create.
On September 13, 2021, the House Ways and Means Committee provided draft legislation language, and the proposed changes to Section 1031 were not included in the updated plan!
We have set up a new email opposing the elimination of 1031s in the President’s 2024 budget. Click below to send an electronic letter to Congress. We will send a message to your Congressional Representatives based on the address provided.
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In the Ernst & Young Macroeconomic Impact Study: “Economic contribution of the like-kind exchange rules to the US economy in 2021: An update” (published in May of 2022), research showed the positive economic impact of 1031 like-kind exchanges. “In total, like-kind exchange rules were estimated to have supported $7.5 billion of investment at businesses that make use of the like-kind exchange rules, which together with their US suppliers, and the related US consumer spending, employed an estimated 976,000 workers earning $48.6 billion in wages and benefits and contributed to generating $97.4 billion in US value added in 2021.”